Earnings Call: Q4 2010

Feb 15, 2011

Good day, ladies and gentlemen, and welcome to the Tesla Motors 4th Quarter 20 10 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions following at that time. 2. As a reminder, this conference is being recorded. And now I'll turn the call over to Jeff 10, Vice President of Investor Relations. Please begin, sir. Thank you, Tyrone, and thank you, everyone, for joining us this 10. Welcome to Tesla Motors earnings call for the Q4 of 2010. With me on the call today are Elon Musk, 10, Chairman, Product Architect and CEO of Tesla Motors and Deepak Ahuja, our Chief Financial Officer. Before we begin the call, 10. I'll read the following statement to inform you of certain Safe Harbor provisions under the Private Securities Litigation Reform Act 19 95. During the course of this conference call, we will discuss our business outlook and make other forward looking 10. Statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements 10. Our only predictions based on management's current actions. Actual results or events could differ materially from those predictions due to a number of risks and 10. Certainties, including those discussed in the Risk Factors section of our most recently filed 10 Q filed on November 12, 2010, and our financial perspectives related to our initial public offering filed with the SEC as amended on June 29, 2010. 10. In addition, any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any 16. While we may elect to update these forward looking statements at some point in the future, we specifically disclaim any 10. Obligation to do so even if our views change. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent 10. With that, I'll turn it over to Elon. Thanks. So, 6. The 4th quarter was just another solid quarter of execution on all aspects of our business, including gross to Model S and Powertrain. The Model 10. Alpha phases went really well. Very pleased with that. And the development of the Model S is on track. 10. We did quite well in the powertrain business with increases in deliveries for the 10 orders for the smart EV, completion of the development program for the Daimler A Class and commencement of the Toyota Rev 4 EV 10. Development program. We've also added tremendous amount of talent. I think this is a point that's really worth emphasizing 10. The quality of people we're attracting to Tesla is just really phenomenal. I mean, it's absolutely at the best of the 1 to 1 industry 10. I think that's one of the best indications of this is, if you were to attend a college 10. And compared that to the line at any other booth, including Facebook, Google, Apple or anyone else, the Tesla line is the longest line 10. The entire recruiting fair. I think that says a lot. On the 10. We're doing pretty well. It's increased 10% sequentially 2. And revenue driven by better selling prices and a favorable leasing mix. Despite seasonality, because obviously, people aren't 10. We delivered 149 10. On pace with the result in much easier selling environment of the September quarter. We have also 10. Increased the order for Lotus going to a total of 2,500 cars 2,400. We're not going to increase it anything beyond that even though there is actually demand that's in excess of doing 2,500 tickles because we want to stay true to our original commitment that the Roadster is intended to be a collector's item, limited So we're increasing it just by 100 vehicles from 2,400 to 2,500 10. Because we are seeing quite a bit of demand, but we're not going to go beyond that. 10. Yes, but it will allow us to sell few more units in 2011 and 2012. As As far as retail expansion, we opened a new store in Tokyo, where Akio's Toyota personally attended. And just recently, 2. Last week, we had the Washington, D. C. And Milan store openings. Coming up, we're going 10. The San Jose store in Santana Row opening in a few months, and this is going to be one of the first stores that really emphasizes 10. Our new model for selling cars. We're not quite prepared to talk about it now, but I think it will be something that's worth paying 10. Model S is on plan for first customer deliveries in mid 12. So really no change from what I talked about last quarter or what we 2. We mentioned the IPO. There will, of course, be a slow ramp in production in 2012 with it reaching steady state production in 13, as we've talked about in the past. So, as far as the Alphabolt, 2. I drive the Alphabill, latest Alphabill every week. And I would say, I think the car is great even at this early stage. 10. Although it is a sedan, which is comparable in size to a 5 Series BMW or Mercedes E 10. So Audi A6. It feels very light and agile on the road, has tremendous power 10. As you expect from Tesla from something with an advanced electric motor. So 10. I'm really pleased with how the product is developing. It's I really I think this car is going to be 10. The car that even if it wasn't electric would be the preferred vehicle, among premium sedans. 10. So we completed as scheduled last quarter. So we're driving it in December and 10. And accumulated a lot of miles now. We've actually finished just this week our 15th alpha prototype, 2. And last month, we exhibited an exploded view of the body and light at 10. The North American Auto Show in Detroit. Part of the goal of that 10 show was really to emphasize the quality of vehicle engineering at Tesla, because this is one of the least appreciated aspects 10th of Tesla's capabilities. Many people generally appreciate that we've got the world's best power 10. They can obviously appreciate the aesthetics of the Model S by looking at it. But we really had to go under the 2nd. Again, to show that the vehicle engineering is just as good as the concrete engineering and the aesthetic design. It's 10. It's an all aluminum body and chassis. And in fact, we'll be the only aluminum car made in North America. 10. The next most advanced car is probably the Audi A8, which is up to made in Germany. 2. We feel there are reasons to say that the Model S is actually more advanced and better on the objective metrics, so things like torsional rigidity, 10. So 10. Yes. It's going really well in that respect. We feel very, very confident about having compelling 18 beta that will be available for test drives this summer of this year. 10. Let's see. With respect to Fremont's manufacturing facility, this is really a substantially integrated 18. This includes damping, plastics, paint and body assembly shops 10 and Manufacturing of Powertrain Components. This is we're really taking advantage of an amazing 10. That we inherited from Toyota, where they made the Toyota Corolla and 10. Tacoma Trucks. So, I know, some will disagree with the strategy, 2. I think vertical integration is a smart move. It allows us to adapt quickly to 10. We rapidly innovate and also to control our unit costs. This is quite important 10 for a small car company, because we don't have the leverage of a larger car company. 10. So whereas a large car company could 10. Has leverage with suppliers, because they can always say, well, if you don't do a good job on this program, you're we're going to 10. Not give you access to another program or something like that. We don't really have that flexibility or that leverage. So it's important for us to be able to say, okay, 2Q. Our supplier are not going to do a job right now for us here. We will in source and have that be a credible 10. The largest hydraulic press line is being assembled in Fremont on schedule. This is really 18. Yes. I mean, it's the largest hydraulic pressure line in North America, 1 of the largest in the world, and we expect it to be fully assembled by the Q2 this year. 10. We finalized the Model S 10 production layout. And we're going to we're actually going to design it to allow for 20,000 units on a single shift. This is slightly different from our prior plans where we put 20,000 on a double 10. It's a little bit of extra money spent now. We think it lays a better foundation for the future, because it means that we can go to double 2. And quickly adapt to increased customer demand, 10. Particularly bringing in something like the Model X. If we want to 10. And this allows us to do that without having to reconfigure the line substantially. 10. The Model S Alpha powertrain is looking very 2. I don't think this is a risk at all for the Model S. In fact, I think it will be better than it's better than what I expected. My 10. So, I think this is looking really, really strong. I'm very excited about the 10. The idea of sort of a sport version of the Model S or performance version of Model S that 18. It actually outperformed something like the M5, which I think would be a great product. 10. Supply and sourcing for production remains on track really. So it's almost entirely done. I think So this is an important data point because one of the questions is, well, is Tesla going to stay on track for the expenditures 10. In terms of total ED and T and all that as well as does Tesla have a sort of a handle 10. On the unit cost, I think having almost all suppliers almost all supply agreements done and 10. I think I'll say that, yes, we feel good about both of those elements. I think it's very important and that is the 10. So, yes, we have some last picked 10. And I've talked before about how important I think 18. This is a really, really important detail in the car. So 10. On the body shop side, pads and eDAG for final assembly, JPS Webb. Tilling supply 10. Kickoff is also underway for our dies for stamping. That's Fuji is the our dies supplier there. They're hard at work. It 10. As far as Model S reservations, we now have over 3,000 10. Bear in mind that minimum amount for reserving a Model S is $5,000 So this is sounds like it's 6. $100 reservation, it's a $5,000 reservation. And we're still dedicating very minimal resources to this effort. And 10. It's really going to be in around the middle of this year, maybe the second half of this year, really when we start to ramp up our sales effort 10. So, coincident with having beta vehicles that we can give people test rides 10. On the strategic relationships, I might just drill down a little more. 10. The Daimler business continues to progress well. Daimler has increased their order by 300 vehicles to 1800 for the smart. This is the 3rd time 10. And the Dimlin has increased its order, which was originally just 1,000 units. So, I think it shows that there's continued interest from 10. And we delivered a record amount of battery packs and charges in the Q4. As far as the A Class EV, as I mentioned, development work 10. For the Toyota RAV4 EV, total development revenues projected to be about $69,000,000 In this case, we're providing the tire electric vehicle powertrain, including the motor and gearbox in addition to the battery, the charger and software. 10. And we've met the 1st major milestone under the agreement. We'll be delivering Ramform prototypes since 10. And we're just about to finalize the production supply agreement. And obviously, Toyota choosing to have Powertrain for that point is a tremendous endorsement. I think really having well, both Toyota and Daimler, I mean, 2. The company then invented with internal combustion engine car. Toyota is the largest car company in the world and leader in hybrids. And to have them as 10. It's obviously a great honor for us and really couldn't ask for a better endorsement of our core technology. 10. Then there's also Panasonic. Panasonic vehicle has they invested in Tesla 10 late last year, which is great validation. They're also kind of to state publicly that Tesla has 2. The most advanced factory pad technology in the world for EV applications. 10. We continue to work to optimize the 18,650 form factor, specifically for automotive use. This is an important 10. Point that sometimes people are unaware of, which is that the AT although with Roadster, we use an almost unmodified laptop cell. In the case of 10. It is actually a highly modified cell that has the same external dimensions as laptop cells. So we can use the automated cell handling equipment, 10. But it is a significantly different internal geometry. Those redesigns come at the 10. Tesla, and we're able to transfer that those changes to 10. So this is not an exclusive supply agreement that we have with Panasonic. And we are we do expect to establish a second source 2. Cell supply given its importance. Although the past cycle Of course, remains our preferred number 1 sales supplier. The yes, 10. So as far as 18,650s in general, we see at least for the next several years, we do not see anything better than an 18,650. And for those who think that there's a larger format to sell at FedRite, I would simply ask what is the 10. And what is the energy density? And until some if Delta fire comes back to us with a number that is better than the 18,650, it would obviously be foolish 2. To use anything except the 18,650. It's really as simple as that. Just a little bit of operational guidance. 10. Last quarter, our primary objective was the completion of the drivable alpha prototype. You can see videos on our website 10. Doing great carving turns through Southern California. This quarter, our model has related activities include 2. Just finishing off the fleet of Alphas, doing extensive testing of the Alphas in a variety of climates, testing braking, 10. We're completing the last release of a series of different parts of our suppliers 10 and executing detailed ratings plans at each of the stamping, plastics, paint and final assembly shops. And 10. Later on this year, we'll be going into beta vole. And beta vole is it's 10. Kind of like just the status of high-tech. When something is at beta stage, it 10. It is almost instinctual from the production article, except that, of course, there's a whole series of bugs 2. And maybe some corner case functionality that needs to be added and that kind of thing, but it's really what you see at the beta phase 10. It's almost identical to what you would receive in production. And 2. We feel confident of having our 1st beta build this summer. 10. So, let's see. And then just maybe a few sentences just on the Model 6. And maybe I'll clarify a few things on that front before I hand it over to Deepak 10. The Model X is on is a variant on the Model S 10. So it is a crossover SUV. It's intended to be cooler than any other SUV that's our aspiration, but it actually 10. Functionality that exceeds over minivan. This is a tough goal to achieve, but I think we've got a shot at doing that. That's really what we're aiming 2. Pricing would be comparable to that of the Model S. And so this is not our sort of 2. 3rd generation mass production vehicle. That vehicle is still several years away. But the Model X is really 10. Just a way of generating potentially twice as much volume in 10. In the premium vehicle segment by offering across the SUV in addition to a sedan. 10. And we're looking to unveil the design prototype of that at the end of this year. 10. With that, I'll just turn it over to Deepak. Thanks, Elon. The primary takeaway from the quarter is that 10. In addition to delivering on the Model S, as Ivan has shared with you, we have continued to improve 10.5%. As the December quarter marked the end of our fiscal year, I'll discuss both our quarterly and 10 annual performance and then conclude with some thoughts on guidance. While discussing the financials, I'll provide 10. And a commentary on both a GAAP and non GAAP basis. Our non GAAP financials include or exclude, sorry, non cash charges related to stock based compensation and change in the fair value of our outstanding stock 10.5% and change in the fair value of our outstanding stock warrants. A reconciliation of the non GAAP information 10. Turning first to the P and L. Overall revenue for Q4 was $36,000,000 a 16% increase over Q3 and almost double that reported in 24 of last year. For the year, revenues were $117,000,000 up slightly from $112,000,000 for 2,009. 10. Given that we were shipping Roadsters against a 2 year backlog during most of 2,009, we believe the 2010 performance 10. Let me remind you that we report revenue in 2 categories, 10. Automotive sales consist primarily of roadster sales and to a lesser 10, the sales of powertrain components to OEMs as well as 0 emission vehicle credits. On the other 10. Development services revenue consists of services we provide to other OEMs to develop 10. Starting with the Roadster portion of our automotive sales. As Ilan mentioned, we delivered 100 and 2. Given that our sales have some degree of seasonality during winter months, average selling prices 2. Increased as compared to the prior quarter. This result, when combined with a lower leasing mix, contributed to a 10% sequential 18. Thank you, Steve. Good morning, everyone. Welcome to the Tesla Motors 4th quarter 20 10. As compared to $112,000,000 in 2,009, a comparison that is a bit apples to oranges, 10, again due to the 2 year reservation backlog in 2,009. Looking at the powertrain components portion of automotive 10. Revenues were up almost 80% sequentially to $9,000,000 in this quarter. We achieved 10. Increased its order by 300 battery packs and chargers for the Smart 4.2 EV and the total program is now up to 1800 10 units. We currently anticipate delivering these components until the summer of this year. In Q4, we We also started recognizing revenue from the delivery of battery packs and chargers for the Daimler A Class program, which we expect to continue 10. It's worth noting that our revenue per unit for the A Class battery 10. Is roughly double that for Smart Fortwo, which is in proportion to the increase in the size of the battery capacity. 10. For the Europe, powertrain revenue was $22,000,000 This portion of our revenue stream was negligible in 2009 since we had just started shipping production powertrain components in Q4 of 2009. 10. Overall, automotive sales revenues increased sequentially by 25% to 20 10,000,000 which we believe is a strong result. And on a full year basis, automotive sales revenues were 90 10. $7,000,000 as compared to $112,000,000 in 2,009, again due to higher road strip sales in 2,009 to clear 10. Turning to Development Services revenue. Development Services 10. Revenue decreased sequentially by 10% to $7,000,000 in Q4, primarily due to the completion of the Daimler A 2nd class development program during the quarter, but this was partially offset by work underway on the Toyota RAV4 10.4 EV program. After agreeing on the final specifications of the RAV4 EV during Q4, 10. We now have the opportunity to earn up to $69,000,000 in development services revenue as we execute on our deliverables. 10. We currently anticipate recognizing this revenue over the next 4 to 5 quarters, given Toyota's stated intent to enter 10. And just as clarification, the sale of production parts for the RAV4 EV will be 10. On a full year basis, development services revenue in 20 $20,000,000 The comparison with 2,009 is not meaningful here since we started recognizing revenue 10. Total gross margin for the quarter was a record 31%, 10 as compared to 30% last quarter. Gross margins increased across all revenue lines, showing great execution by our entire 10. Gross margin from our automotive sales was 20% as compared to 17% in Q3, the highest we've ever 10. Gross margin for Development Services was 78% in Q4 10, as the timing of revenue recognition did not fully match the period in which we booked the underlying cost of revenues. This mismatch was further 10.7% in Q4 with the completion of the A Class program and the start of the Toyota development contract in 10. Remember that this gross margin for Development Services is not an indicator of future performance due to these timing differences. 10. Total gross margin for the year increased from just 9% in 2,009 to 26 10. While this increase was partially driven by a change in mix between the automotive and development services revenue, 10. We also increased automotive gross margin from 9% in 2,009 to 18% in 2010. 10. This shows the extent of improvement we've been able to achieve in both our Roadster and Powertrain activities. We are intent on 10. This has continued to reflect continued emphasis on the development of the Model S and our spending on infrastructure. R and D 10. Expenses were $38,000,000 for the quarter on a GAAP basis and $36,000,000 on a non GAAP basis. 10. Non GAAP R and D expenses increased 40% sequentially, primarily due to expenses related to the Model S Alpha prototype 10 and one time relocation expenses of our vehicle engineers from LA to Palo Alto. We also had higher production and engineering headcount 10.2% during the quarter and the accelerated completion of engineering work underway at several 10. We expect quarterly spending in 2011 to increase moderately from 10.5% to Q4 level as we continue to execute on Model S program, and the spending may be lumpy in some 10 quarters. SG and A expenses for the quarter were $25,000,000 on a GAAP basis and $20,000,000 principally to the growth of our sales and marketing activities and headcount to support the continued growth of our company globally. 10. We expect quarterly SG and A expenses in 2011 to increase slightly from the Q4 20.6% to 4% level as we continue this global expansion. This will be offset by our continued cost control in G and A. In summary, we are closely 2. We are 10. We are incurring a net loss despite improved margin and will continue to do so for the next several quarters, while we are 10. We're making significant investments in R and D and our infrastructure to launch the Model S. Net loss for the Q4 was $51,000,000 10. On a GAAP basis, this loss included $8,000,000 of non cash stock based compensation, 10, of which $3,000,000 related to our Model S based performance grant, reflecting a higher probability of achieving 10. Without these expenses, the loss in this quarter on a non GAAP basis was 10.4000000 dollars or $0.47 per share with 94,000,000 weighted average common shares outstanding. For the year, 10. Net loss per share was $3.04 on a GAAP basis and $2.53 on a non GAAP 10 basis with 51,000,000 weighted average common shares outstanding. 10. As a quick note, we expect that most of our interest expense will be capitalized until the start of production of 10.6% or less since the DOE loan is being used to build out the Tesla factory in Fremont. Turning now to the balance sheet. 10. Total cash, including our cash in the DOE dedicated account, was $173,000,000 at the 10. This compares to total cash of $185,000,000 at the end of the prior quarter. 10. Combining total cash with the remaining DOE facility, we had capital resources 10.566,000,000 available as of the end of the year. We currently anticipate that this will be sufficient 10.5% to fund our operations through the launch of the Model S based on our present plans. Looking at cash flow for the quarter, 10. Operating activities consumed $34,000,000 as compared to $46,000,000 in the prior quarter, 2. Despite the higher operating loss in Q4, the majority of the cash used in operating activities during Q4 is 10.8% convertible under the DOE loan as it relates to our expanding R and D spending. Our inventory continued to grow to 2.5% to support our Roadster and Powertrain sales, but at a slower rate than the prior quarter. Over the next few quarters, we expect inventory to continue to 10. As we have elected to build Roadsters at a faster pace than our sales forecast, given that Lotus production of Roadster 10. Will stop just after year end 2011, and we intend to continue with growth to sales 2012. Capital expenditures were $24,000,000 in this quarter as 10. As compared to $67,000,000 last quarter, recall that last quarter's numbers included $56,000,000 10, related to the acquisition of the Fremont facility. Over the last two quarters, we have made opportunistic purchases from the 10.5% of our total NOMI operations, particularly in stamping and plastics, which is allowing us to in source a greater number of 10.5 $5,000,000 in CapEx. This was lower than we anticipated, mainly due to timing. We expect that this 2. 2. Was the drawdown of $15,300,000 from our DOE loan facility at interest rates under 3%. 10. Since the end of Q4, we have drawn an additional $15,600,000 from the DOE loan facility related to 10.4 Spending. As shared with you earlier, the DOE funds half the expenses upfront and the remaining half 10. Next, I'd like to offer some thoughts and guidance. Since we remain focused on the long term objective 10.5% of delivering the Model S on time and as planned profitability, we are providing full year 10. We project revenue to increase by about 40% to 50% 2011 to a range of $160,000,000 to $175,000,000 We expect Roadster sales to grow over last 10. But still expect some seasonality during the winter months. The total Roadster program, as Elon mentioned, is now 2,500 units, 10. And we have delivered for 1500 so far. Thus to the extent we exceed planned Roadster sales in 20 10. We might not be able to meet all the Roadster demand in 2012. 10. As Elon mentioned, 2011 should be our biggest year for capital spending for 10.5% of our 10. For the full year, we expect to invest about $190,000,000 to $215,000,000 10. Remember that the majority of these capital investments should be reimbursable under the terms of our DOE loan. With At this level of CapEx spending, we can execute on our strategic decisions to increase insourcing, primarily in stampings 18. We've also elected to invest incrementally in new technologies, primarily in our paint and body shops to produce even higher 10. Furthermore, we are investing in additional plant automation, as Elon mentioned, to expand capacity to produce up to 20,000 units on just one shift. This has about a 1 year payback in terms of saved labor and overhead costs. 10. The strategic benefit of this decision is that it also accommodates either higher Model S production or the efficient introduction of future models, such 10. Finally, as we have concluded negotiations with most of our suppliers, some 10. Some investments planned for 2010 have been deferred into 2011, while others have come in at a slightly higher cost over 10. Please remember that all depreciation of our capital expenditures related to the Tesla 10.5%. Moving on to Model S 10. We have received slightly over 3,400 Model S reservations as of December 31 and have now We plan to disclose this number of refundable reservations received during these 2. Received during these earnings calls, but we'll not provide future guidance on this number. Since we are not actively focused on getting Model S reservations 10. We do not regard the number of new Model S reservations received in any given quarter to be an indicator of our performance, 10 at least for the next year or so. I'd like to conclude in summary by reinforcing that we continue to be excited about our long term opportunities. 10. This ends my prepared remarks. Okay, analysts. And just a quick note to all of you and 10. And our investors as well, we just want you to note that when comparing our results to what services such as Thomson Reuters 10. These services are reporting a 20.10 annual 10.5 percent. Loss expectation of $2.23 per share. And clearly, this is incorrect since even before this quarter, 10. We had already reported a year to date loss of $2.50 a share. We think this discrepancy appears to be driven primarily by a misread of the sell side analysts' models and that may be attributable to the 10. And that may be attributable to the difference between past, actual and pro form a share counts. 10. So analysts, we ask you to please make sure that going forward, the consensus service providers actually 10. So with that, Tyrone, let's now open the call for Q and A, 10. 10. Our first question is from Dan Goss of Deutsche Bank. Your line is open. Thanks very much. 10. Congratulations on a good quarter. Can you hear me? Yes. Okay, great. Just wanted to think about 10. How should we think about cost expectations, how they've changed for the Model S over the last couple of quarters 10. In terms of raw material changes to raw material pricing that you've seen in the market, it sounds like this investment in automation for 10. Well, I'm just Dylan here. So I think 10. They're in line. So, I mean, there's always a little bit of fluctuation in the cost of 10. It's really we feel pretty confident of being able to achieve, 10. I'd say really good margins on the car. There are some I mean, there's slight sort of 10. Maybe currency risk amongst some of our suppliers or some chance of raw materials going bonkers. I mean those things can affect 2. But overall, I feel good about 10. Achieving the 25% gross margins that we have said we think we can achieve with the model assets. So 10. It's really reaffirmed our ability to do that. Okay. Thanks very much. 10. On the vertical integration strategy, you talked quite a bit about, is there any part of that, that essentially 10. The timing of validating some of your processes, could there be a chance that 10. You get to the point where you want to outsource a part of the vehicle production and do you have backup plans or is Is there any part of that vertical integration strategy that could really change the timing of the Model S launch if it didn't work the way 2. No. It's actually intended to do the opposite which is to reduce the risk of 2. Having 1 or 2 suppliers that caused a delay in the deliveries of Model S. The basic philosophy of the in sourcing is to 10. If we need to, to be able to do almost anything in house. So, we don't 10. Expect to do everything else that would be foolish. But to have the ability to have that optionality to say worst case scenario we can crank 20 fourseven 2. Internally and make that part ourselves is incredibly powerful. And it's and I 10. I think also, I'll keep suppliers honest if they know that we have that ability, because sometimes what can happen is suppliers will 10. Or tell you that or reveal that they really can't deliver. I've 10. I've seen that so many times. And being able to rally the troops internally 10. And solve that problem is, I think, very, very important for controlling one's destiny. Okay. And Just one other quick one, can you give us an indication of incremental investment for new top hats and potential 2. Yes. Bear in mind these are just rough approximation. 10. So I wouldn't treat this as cost or anything. It's but for Something like the Model X, we're thinking it's between $100,000,000 $150,000,000 total CapEx. Hopefully, we're trying to do it at the lower 2. But even if it's at the higher end of that, I mean, it's a ridiculous to get return on investment. So it's like an obvious it's an obvious move. 10. Okay. Thanks very much. Thanks. Thank you, sir. Our next question is from Joshua Paradise of 10, Morgan Stanley. Your line is open. Hey, guys. Congratulations on great execution and thank you for taking the question. You talked a little bit about the battery chemistry that you're 10. So I guess is the chemistry that you're going to use in the Model S, at least in the first version of the Model S finalized? Or is that 10. It is finalized in the broad brush strokes. There are 2. Finesse items that are little details that will continue to be optimized over this year. But there are no major outstanding question 10. Very pleased with the results we're getting in our test packs. I think people 10. We'll be pretty impressed with the results. It's I think it's as far as I can tell, it's more than what anyone thinks is 10. Okay. And can you give a little bit more information on what you're refining? Is it the chemistry? Is it the internal geometry? Is it something else? Yes, all of the above. 10. Yes. So there have been some tweaks to the internal chemistry, a lot of tweaks to internal geometry. And 10. It's fairly proprietary. So we can't talk about exactly what they are. Of course, I mean, since we have the car on the road, so we can buy a car and then 2,000 to start dissecting the pack and the sale, but we'll leave it to that point before they can before they know 2. What exactly we've done. Right. And then in the past, you've talked about potential agreements with other OEMs. Obviously, you have a strong agreement with Toyota, you have Daimler. 10. Can you give any update on where you are with discussions with other OEMs? Yes. We are I'd say 2. We've had some recent significant discussions with OEMs, I mean, with other OEMs besides our 2 main 10. I mean, we do need to be a little cautious about engaging another big OEM deal, a convertible model right 2. Now given the importance of the Model S program and focus on that as well as making sure we do a great job for 2. I mean, I think we definitely have our hands full right now. 10. Yes. I think we want to make sure, particularly with respect to the RAV4 development, which is a very enhanced development 10. We do a really good job for Toyota. 10. And then like I said for the Model S as well, which is kind of our mainstay. So think of it like it's not as 2. There aren't deals that we could do if we wanted to do them, but we have to be make sure we don't buy off more than we can share. All right. Okay. Thanks so much. 10. Thank you. Our next question is from Patrick Arambult of Goldman Sachs. Your line is open. Hi, good afternoon, 18. I guess a couple of questions. On the CapEx spending, 10. I think you had said 190 to 215 for 2011, I forgot that right. 10. Deepak, how does that compare to what you had originally envisioned for the year? And maybe could you tell us A little bit about some of the variances, what was timing, what increased vertical integration, what's maybe 10. Just cost that is a little higher than you guys had budgeted? Yes, 10. It is higher than our initial numbers, but for very good reasons that we have fully read it out and 10. And as we said, Ziran and I have discussed, I think it's all strategic related to what makes sense for us to in 10. Particularly in Stamping and Plastics. What makes sense for us to go invest in better technology to get that high quality 20. To get that perfect fit and finish in our body shop, what makes sense for us to 10. Spend that extra bit of money and get the 20,000 units on a single shift and get a quick payback, which helps 10. And I think the bottom line of all of this is that we have sufficient 2. Of cash on hand, as I mentioned, the $566,000,000 between cash and the DOE loan facility that 10. We feel comfortable about completing the Model S program with that funding in place. Yes. In fact, I'd just like to reemphasize what 2. Even if we raise no additional funds at all, we have 10. I think this is perhaps I just 10. I think that there is a likelihood, in fact, 10. I mean, arguably, the expectation that we will raise some incremental capital for the Model X program, 10. But that would be kind of maybe towards the end of this year in terms of timing. It's not like in the immediate future. 10. I think we wouldn't do it any sooner than after the Model S space is 10. People perhaps can feel can sort of get a more direct sense of what kind of products Tesla can deliver and are they really 10. Great products are not. That seems like the sort of soonest timing that we would do it. And 10. On that note is kind of the incremental capital that you'd be looking for, for the Model X 2. Is that the sort of the zip code of what you outlined to the dam there? I think it's 10. $150,000,000 or something. Yes, it would be probably in the order of $100,000,000 to $150,000,000 type of thing. Okay. 10. And on the beta prototype, when do you guys actually start testing on that for excuse me, 10. Actually, well, the safety stuff is already underway with the Alpha prototype. 10. And that testing is then used to calibrate crash simulations. 10. And then we make modifications from those initial from the safety tests 2. With the Alphas, there's a slight design iteration going to the betas. So, just to be clear, that crash testing is actually We already started safety testing of doing things like the ABS brakes testing, which is underway with Bosch. 10. That was an important milestone because we need to get cold weather ABS testing underway, 10. Which is great. That's happening now. Then there's going to be another period of intense crash testing for the betas starting 10. And then we'll crash this thing that takes place once Once we have our release candidates, because the beta is, call it, sort of 98%, 99 10. Production design, but it isn't entirely made with production tooling. So we can we have yet another confirmation step with 10. The release candidate articles, which should be kind of in the roughly 11, 12 months from now. 10. And that's just to confirm that the process used to manufacture the cars results in cars that are percent. So there's a whole lot of crash. There's a tremendous amount of crash testing taking place. I mean, because 10. Our standard that we're what we're aiming for here with Model S is pretty extraordinary in terms of safety. We're 2. We're aiming for sort of all around 5 star rating by 2012 standards, which is a very high standard 10. A car that was 5 star by 2010 standards would be a 3 star in 2012. So this is important to appreciate 10. How high of our it is that we're waiting for, or we can miss that standard by mileage will be better 10. Other stands in the road. So, we want to be the best. So that involves a lot of crashes unfortunately. 2. I mean, we have to do them, but it is sad to see so many cars getting meshed up. 10. This is extremely important 2 dimension. And so I'll have my family and my friends' families, I want to make sure this is that we can 2. There isn't a safer car on the road. Sorry, a little bit more 10. Related to that actually, is the release candidate, can you talk us through is that what happened? You have kind of 10. I guess, an assembly tooling product that you released in Nitsa and that's when you get your final 18. And that happens sometime next year. Is sort of that the way to think about it at the end of your internal testing process? Is that how it works? Yes. I mean, 10. Well, in the U. S, it's kind of a, I guess, a self certification process. I mean, you conduct the tests, you compile the data, 10. But then your tests aren't chaperoned by others. It's different in Europe. The 10. So we'll be doing these tests both according to U. S. And European specifications, 2. So, it's actually it's 10. So, the witnessing stuff is more on the European side. But yes, it's basically 10. Alpha is about validating the calibrating the crash simulations to the computer 10. What we see in reality, is there anything that we learn that's perhaps not captured in the simulations? And then 10. We do an iteration going to beta. In the beta phase, we sort of confirm the corrected design. 10. So, some sort of minor iterations in the beta phase. And then the release candidate phase is really just confirming that we've been consistent in the way that we make 10. Got you. One last, just a small modeling thing. Can you tell us how many battery units you sold 2. I don't think we have publicly shared that information so far, Matt. Okay. How about job credits? 10. I think we do mention that it's about 800,000 10. Yes. And just on the Ziffer front, I guess, for the Model S, 10. Our margin assumptions depend only very slightly on their credit. I think it's only like 2Q. Percentage points or something like that. And it's broader than ZEV credit global and it's many of your trading of credits that may be 10. Yes. I mean that said, we are seeing a little more interest in their credit spend than we previously thought might be the case, 10. We'll see. We don't know if that's going to materialize or not. Great. Thanks a lot, guys. Thanks. 10. Thank you again, ladies and gentlemen. Our next question is from Andrea James of Dougherty and Company. Your line is open. Hi, guys. Hey. A 10. Question about some of your OEM partnerships. Can you tell us a little bit more about what Daimler was thinking with upsizing the number of battery packs? And 10. Is there a possibility of you guys getting a production contract on that? Yes. So I can tell you 2. Thanks, Dan. Thanks. But that would be obviously the best entity to comment on this officially. But 10. They're just seeing a lot of interest in the smart EV. People really like it and 10. So that's why they've increased the sort of test fleet size 10. I think that's the rationale there. As far as the kind of the 10. Production deal for smart battery packs, that's they're going through sort of a detailed 10 RFQ preparation process right now. We certainly think that we are in an excellent position to win such 10. I don't want to be blunt just, but certainly we're in an excellent position. I mean, it's our pack is in the test fleet. So 2. Any other alternatives would have to well, I'm not sure what testing process they'd have to go through, but it would certainly be 10. So that's the reason that if the test fleet is using our package charger that 10. That gives us, arguably, pole position in a production situation for smart. Yes, for sure. 10. As far as the A Class E cell, I think you had said something in your commentary about you mentioned production. Can you just I missed I didn't quite understand and I didn't 10. That had been that was production yet. Sorry, could you repeat that question again? Yes. I guess, 10. Elon, you had said something about the A Class you started delivering. I thought you said production battery pack. Is that a production contract or is it still development? Well, we call it sorry, just to clarify, we call it production battery packs because the development 10. Contracts over and now we are providing them battery packs for their S fleet, which will 10. Primarily be running in Europe. Yes, call it perhaps small scale production versus large scale production. It's 10. Production by Daimler standards because you have to meet all of the very intense safety 10. And reliability standards of Daimler even for a test fleet. So Daimler regards it as production, because they hold us the same 10. That 10. And then about the Toyota upside, upsides, that you said 69, and I think before it had been 60. Is it just that 10. You're doing more for them now? It's a bigger contract than before? No. Let me just clarify. We signed an initial contract 10. In Q3 for $9,000,000 to provide them some initial prototypes. And 10. Later on, we followed that up with a $60,000,000 in Q4 for the development contract, which is broader in scope, and it meets 2. Completely the specifications that they want. So that's the combined $69,000,000 Okay. And then my final question is just on the Model S 10 distribution. When can we hope to hear more about, I guess, your store rollout and what your plans are there? 10. Well, I think there's 2 parts to that. One is kind of the schedule of store rollouts and then the other is the just kind of 2. The refinement of the whole purchasing and servicing process, the sales and service process for 10. We're trying to innovate significantly on that dimension of the auto business, which is I think historically has been not been rather poor. 10. A lot of people would regard their car buying experience as the worst retail experience they've had, not always, but a lot 10. A lot of people would say that and they actually have said that to me. So we want to make that we really want to change that so that you really look forward to buying a 10. And that you actually would come into a Tesla store to sort of just browse around and kind of see what's happening, even if 2. We weren't specifically in the mood to buy a car right at that moment. We want to be really 10. And our first prototype of that 10. Experience is going to be the Santana Row store in a couple of months. But 2. It is going to take us a little bit of time to refine that process or refine the experience. So I think you'll really start 10. See that kind of develop over the course of this year. And as far as the rollout is concerned, right now, we're making sure that 10. We're identifying locations in key metros for Model S 10. And beginning kind of the long lead process of lease negotiation and permitting and that kind of thing. But we 2. We're going to try to avoid applying a ton of capital to it too far in advance to the Model S sales because 10. We really won't have any trouble selling the first the 2012 production of Model S. In fact, 2012 production of Model S will probably be 12 before I mean, I think this prediction, but I think I'm rudely saying doing so. But that 10. Our production our 2012 production of Model S will be sold out before 2012 starts. I think that is a very likely thing to occur. 10. And so, obviously, there's a need to have a huge number of stores because we've already sort of 10. We're selling cars for Loring 2013. So really You'll see like the big ramp in store locations and whatnot for Model S in 2012 rather than 2011 in preparation for 20. Got it. That's kind of a sensible strategy. Thank you so much. That's all for me. 10. Thank you. Our next question is from Ben Kallo of Robert W. Baird. Your line is open. Hi. Thanks for taking my question. So could You guys talk about your strategy if you have one at this point about entering developing markets. So do you plan on developing market specific car models. Or would you do this and would you do this alone or with a partner? 10. We're definitely by developing markets, I think you may be thinking about the BRIC nations. China is not 10. No, the particular markets that you have in mind? Yes, 2. Okay. Yes, I think really although China is by far and away the most significant given that 2. The new cars delivered in China are now greater than that in the U. S. That could shift as the U. S. Economy 10. It certainly has been for the last few quarters. So we're thinking that entry to China 10. We're being kind of the 2013 timeframe. As I mentioned just a moment ago, this just in our existing markets, we'll be we'll cover 10. All of the demand for 2012 all of those, I should say, we will have demand in excess of the production of 2012 12 and probably have pre sold 2012 by the end of 2011. So therefore, 10. Getting to markets beyond that is kind of only important really in the 2013 time range. So that's logically when we would go to China. 10. And we would go with Rugo Direct. So it would be just Tesla, not a local 10. And so as you modify your models, if you need to enter those markets, do your costs increase or how do you view costs by entering those 2nd. Yes. We don't anticipate significant modifications apart from local language 10. I mean, and there's sort of small homologation changes that need to take place. But just as Mercedes doesn't modify 10. S Class significantly by market or if BMW doesn't modify the 207 series or Maserati doesn't really 10. I think we would likewise not significantly modify the Model S. There may be like long term, there may 10. Market specific models that we bring out, but I don't anticipate that in the next few years. Great. Thank 10. Thank you. I'm showing no further questions or comments at this time. I'd like to turn the call over to Elan 10. Thanks. I don't have any closing remarks. Good questions. Appreciate everyone's time on the call. Okay. Thank you, 2. We look forward to seeing many of you on Wednesday, March 2, in San Francisco at Morgan Stanley's Technology Media and Telecom 10 conference, where Deepak will be presenting. Thank you. Ladies and gentlemen, thank you for your participation.