Earnings Call: Q3 2010

Nov 9, 2010

Good day, ladies and gentlemen, and welcome to Tesla Motors Third 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. As a reminder, this conference is being recorded. And now I would like to turn the call over to Ricardo Reyes, Vice President of Communications. Your line is open. Thank you very much and thank you for joining us this afternoon. Welcome to Tesla Motors' earnings call for the Q3 of 2010. With me Before we begin the call, please allow me to read the following statement to inform you of certain Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. During the course of this conference call, we will discuss our business outlook and make other forward looking statements within the meaning of the Safe Harbor Actual events or results could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our financial relating to our initial public offering filed with the Securities and Exchange Commission and as amended on June 29, 2010, and our Form Q is filed on August 13, 2010. 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 subsequent date. While we may elect to update these forward looking statements at some point in the future, we specifically disclaim Any 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 to With that, I'll turn it over to Elon. All right. So as I mentioned in the last earnings call, I Generally, our approach is to try to provide information relatively speaking in real time for most things. So that the quarterly earnings call isn't some big revelation or something. It's for Most part reiteration of the progress we've made in this quarter and give a little bit of sense for what's coming ahead. So overall, I think looking at the Q3, it was a solid quarter of execution on the last Including Roadster, Model S and Powertrain. As far as Model S milestones, we have completed the Fremont factory purchased the NEMI factory. We've made great progress in the powertrain prototype and then In the overall vehicle alpha prototype and I'll talk more about that later. But our overall Model S development on track for the mid-twenty 12 delivery of customers. We've obviously finalized the We completed all deliverables for the Daimler A Class battery packing charges with Mercedes A Class and on our shipping As I think most people have seen, we announced an investment from Panasonic on the order of And we've continued to add incredible talent at all levels of the company. And in fact, I think on this point, this is probably the most important point, I think, for the ultimate value of any company is that it is in any given company is kind of the effect of people within it and we're just really adding unbelievable talent. If there's a hiring there at university or something like that, we have we tend to have the longest line by far when people are queuing up to hand in their resumes and so forth. So it's I think that is the biggest indicator ultimately of the value of any company and certainly of Tesla. So just drilling into a little Into a little more detail on each of those items, on the rest of the business, which is perhaps to some degree a proxy Model S, we had a great quarter, 151 roads delivered globally, grew 7% quarter over quarter. It's actually the best quarter for new orders in over 2 years And up 15% in terms of orders from Q2. And these are really new orders. So it's not as though we're working off some backlog of orders. These are really these orders both either In the Q3 or just shortly before Q3. These are all new customers to be clear. We're now in 31 countries around the world, we completed the Toykoa Odyssey of Pioneers, where we did the first round the world trip of production electric car. It was very exciting. That went through starting in Brazil and going through Eastern Europe through Siberia, China, India, we sort of have a secured route actually. Sorry? Sorry, Europe and China, India, Japan, U. S. And then finish up in Paris. And Through that entire period, we were just charging off the local grid. So there was no infrastructure installed or anything That's no special things done, which is charging using the onboard charger of the car. As far as retail expansion, which is continuing to lay the groundwork for Model S growth, we opened a new store in Paris in the Q3 And we expect to open our 1st store in Asia, in Tokyo later this week. And then Milan, either End of this year or early next, and then Washington DC probably sometime in the Q1. So we're really going to be focusing on making sure we're getting the store The retail experience as perfected as possible. So it's not just going to be opening up new stores, but also looking at our Stores and saying how do we make that retail experience truly supportive. So I think Next year, we'll start to see a little bit more of how we're attempting to perfect the purchase experience and the service And that whole effort is being led by George Blankenship. So that's I'm actually very excited about how With respect to Model S, as I said, we're on plan for a mid-twenty 12 launch with a slow ramp Production through the end of 2012, reaching steady state production in 2013, still targeting 20,000 units approximately in 2015. The model On several fronts, in addition to completing the purchase of the factory from Numis. We've bought a regular equipment in stampings, paint, plastics and so forth. In general, our approach here is to buy used equipment because the prices for used automotive Actually, we are incredibly low at this point. So we are literally paying pennies in dollar in a lot of cases. In fact, in some cases, we paid Let's note the scrap value of the item because it would have cost more to move the items than to actually buy it. So it's really been great as far as lowering our capital cost for production. We'll tap the operating permits, the manufacturing permits required to enable mass production of vehicles well in excess of Model Production, in fact, we have in commissions permits and so forth that would allow ultimately full use of the For my new facility, getting up to on the order of 500,000 units a year, which is obviously a very long term aspiration, But where we hope to be one day. The manufacturing layout for the model's production is complete. We held an open in October with the media to get people to really give people sort of a firsthand impression of And we've got partnerships underway with several suppliers Finalize the details of the manufacturing processes and the remaining equipment So overall, this facility sets up very well for a significant expansion of capacity of Model S potentially And wireless derivatives as well as our 3rd generation mass market EV. The wireless design new design powertrain system is undergoing Having a 45 minute fast charge capability is, I think we're highly confident of That system, I think people will be pretty excited when they see the design of our fast charger. It's I think both technologically and aesthetically The body and wipes process is underway with 1 of our suppliers, experimental in Michigan. And we expect 1st body in life we completed this month and 1st the completed auto prototype vehicle driving by the end of this year. As far as supplier sourcing, we expect to be 100% 100% complete on supplier sourcing by the end of this quarter with the exception of a few items that are Short term in nature, so that this is where it would maybe advantageous for us to delay making a sourcing decision and so closer to production. But as far as any long lead supply sourcing decisions, we expect to be 100% complete by the end As far as reservations, we're a little over 3,000 Model S reservations. This is actually an easy number to Just put yourself down for a Model S reservation and you will get a sequence number. So this is not exactly a top secret. And I think the fact that we have over 3,000 despite the fact that there's no advertising, there's our sales force to sell the Model S And there's a promotional activities with both reasonably far away from production and the minimum reservation It's $5,000 I think is very positive that we have over 3,000 In the second half of next year, we're going to start turning out the focus of our sales force towards Modelized reservations and so that's when we'll try to ramp things up and hopefully by the start of Our aspiration, I'm not sure if we'll get there, but our aspiration will be that by the time we start Model S production that we've actually Sold out the 1st year of Model S production, 1st 12 months of Model S production. So As far as strategic relationships, a little more detail there. Diamond business is progressing very nicely. The smart, the electric smart, Just program which is total of 1500 vehicles initially. We delivered a record amount of battery packs and charge In Q3, it took about 2 40 units. I mentioned the A Class, Electrode Mesa A Class, we completed development work last We're now shifting production battery packs and charges. The Toyota RAV4 EV deal, which was about $60,000,000 This deal was finalized. We've been delivering about 4 prototypes now since July. This So it's noteworthy that Toyota Have us provide the complete powertrain. It's a really nice validation of our And then a bit more about the Panasonic relationship. It's worth noting that the Panasonic if Panasonic didn't sort of decide on the store at the moment to This is a very long standing relationship. We've been working with Panasonic and the Sanyo subsidiary now for They have a very deep understanding of Tesla, where we are, where we're headed. And I think it's again, a really powerful endorsement of the technology We've developed here and our company as a whole that Panasonic would choose to invest $30,000,000 at the The Panasonic cells are in use in the Thanos Smart battery pack, the A Class battery pack and the And will be in use in the RAV 4ED and also planned for Model S. It's worth noting, maybe this was before, but that the Panasonic that the cell that We're using here, although it is physically and from the outside appears to be a laptop cell embedded is 18 millimeters in diameter and 65 millimeters tall. The internals are quite different from a typical laptop This is really an automotive sale that we've refined With it's going to do with Panasonic in order to so in contrast to the Roadster, which is really a laptop So we're taking knowledge learned from the Roche program and we've employed that to basically develop an automotive cell that's It's better adapted to automotive needs. It will result in lower cell costs and higher life and That sort of thing. But there's no exclusivity in the Panasonic deal. And this is not a case of work where the Panasonic invested money and in exchange got some favorable contractual elements or This investment was stood on its own legs. And so it's really just something So in terms of operational guidance, just to set I want to reinforce, I think, which is a fairly obvious point that the near term quarterly It's not a particularly meaningful goal because we're spending on the order of $500,000,000 over the next 9 quarters The list over the next over the next nine quarters. So you can expect to see there was some fairly significant expenses It's really the only way to execute business given that we're going from roughly 600 units a year of Roadstead to 20,000 units here, sort of a 30 fold plus increase in production But we're very focused on long term profitability and value creation. And I think if you look at the core business of Margin approaching 30% and maybe that's because it's some degree a And yes, this is just in Capital. Our near term objectives are just to complete the get that first alpha both get that first alpha prototype running by the end of this year. So it's looking Quite exciting. And we expect to also have the upper prototyping Exploded view at the Detroit Auto Show. This is something that people or I can take a look at it Because it really illustrates the strength of Tesla's vehicle engineering and people generally have come to Appreciate that Tesla has strong powertrain and sharing that our design team is also very good because aesthetically you can see It looks like that's the so what we really want to show people is that we've also developed a very strong vehicle And that will be sort of our near term thing that we want to educate people on. And then as we go later into next year, Educate people also on how we've developed a very strong manufacturing team. All right. So I'll turn the One more takeaway from the quarter is that in addition to delivering on Model S milestones that Ilan has shared with you, we have Continue to improve the revenue and gross margin of our existing business. I'll discuss with you our quarterly performance and then touch upon our latest contract with Toyota and the Panasonic investment. Finally, I'll conclude with related to stock based compensation and the change in fair value of our outstanding stock warrants. However, as The P and L, overall revenue for Q3 was $31,200,000 a 10% increase over Q2. As a reminder, in 2,009, we were shipping growth We're holding reservations for nearly 2 years. Therefore, we believe that in this case, the sequential comparison We report revenue in 2 categories, automotive sales and Development Services. Automotive sales consist primarily of growth to sales and to a lesser extent, the sales of We provide to other OEMs to develop electric powertrain components and systems for their vehicles. So starting with The Roadster portion of our automotive sales, as Elon indicated, we delivered 151 Roadsters in Q3 versus 141 in Q2, The remaining revenue for the released Roadsters will be recognized in future quarters. Looking at the portion of automotive sales, our revenues were up 6% sequentially to $5,100,000 in the quarter. We actually Sales revenue decreased by 3% to $23,400,000 which can be fully explained by the increase in the lease mix Development services revenues increased sequentially by 80% to $7,900,000 in Q3, Primarily due to the continued achievement of milestones for the A class agreement with Daimler as well as The shipment of RAV4 EV prototypes to Toyota in Q3. Looking at the total gross margin, For the quarter, it was 30% as compared to 22% last quarter, a great result for the company. This increase It was driven primarily by a change in mix between the automotive and the development services revenue and will continue to vary in Slightly better than 16% in Q2. This margin is net of adjustments to our warranty reserve, including a provision We have made for the voluntary recall initiated on October 1. The total cost of this recall from fixing the Our gross margin for Development Services was 68% in Q3, as the timing of the Development revenues did Previously, it's important to note that the gross margin of our Development Services is not an indicator of future performance Turning to operating expenses, The increase in operating expenses continues to reflect the emphasis we have on the development of the Model S and our spending on infrastructure, R and D expenses were $26,700,000 for the quarter on a GAAP basis and We also increased headcount by 62 employees in production and manufacturing or about 22% during the quarter. As we mentioned last quarter, the spending on Model S development will continue to ramp up with increased R and D efforts expenses for the quarter, they were $20,400,000 on a GAAP basis and $17,900,000 on a non GAAP basis. The 8% Increase in our SG and A expenses on a non GAAP basis from the prior quarter is due to the continued expansion of our company owned and service network globally, especially in Asia and the recruitment of key talent, as Elon indicated, A quick comment on other income and expense. This reflects the change in fair value of $23.83 on June 30. Going forward, we'll only be impacted by the changes in the fair value of our DOE warrant since the preferred stock warrants were net exercised at the IPO in Q3. Net loss for the 3rd quarter was $34,900,000 on a GAAP basis as compared to $38,500,000 in the prior quarter. On a non GAAP basis, the loss in this quarter was 34 point $1,000,000 as compared to $26,100,000 during the prior quarter. We are incurring a net loss despite improved margin from the prior quarter and we will continue to do so for the next several quarters since as Elon We are making significant investments in R and D and in our infrastructure to launch the Model S. While looking at our losses on a per share basis, please note that the total weighted average basis and $0.37 per share on a non GAAP basis for the quarter. Turning now to the balance sheet. Our restricted cash in the DOE dedicated accounts was $184,700,000 This compares to a Investors should look at a combination of unrestricted cash, restricted cash At the end of Q3, our restricted cash balance remaining in the DOE dedicated account was $88,100,000 We had deposited $100,000,000 in this account at the closing of our IPO in early July. This dedicated account, As you may recall, it's used to fund 50% of the advances we would This structure, just to clarify, does not affect our ability to draw down the $465,000,000 facility. These upfront payments from the dedicated account will be fully reimbursed by the Counted for on our balance sheet is $33,000,000 of eligible costs that have not yet been funded by the DOE, but qualify for reimbursement under the DOE loan facility. Of this, about $11,900,000 is in request in connection with the use of the dedicated account. And in addition, we estimate that we have incurred, but have not sought reimbursement for approximately $21,000,000 as of September 30. Half of this $21,000,000 will be in Q4 from the DOE loan and the rest will be funded upon the depletion of the dedicated account. Looking at the cash flows for the quarter, cash used in operating activities during the quarter was $46,000,000 As compared to $20,200,000 used in the prior quarter, just to clarify, roughly half of the cash Use in operating activities is reimbursable under the DOE loan as it relates to our expanding R and D spending. In addition, We expect inventory to continue to increase over the next few quarters as we have elected to build grocers at a faster pace will stop by year end 2011 and we intend to continue with growth to sales in 2012. Looking at capital expenditures for the quarter, they were $56,500,000 as compared to $9,800,000 last quarter. Although the Fremont facility and related asset purchases were completed in October, a total of 56 related to this acquisition was included in this quarter's capital expenditures since these funds have been partially paid or set aside in an escrow account. Offsetting our cash usage in the quarter was the drawdown of 11.1 As of September 30, we have drawn down $56,600,000 of the loan We expect that the entire $465,000,000 DOE loan facility will pay For most of the costs related to the engineering, development and facility expenses for the Model S until its launch and for all such expenses on our And just to clarify, these loans extend until 2022 and allow us to borrow at treasury rates with quarterly principal repayments that start at the end of 2012. Before moving on to guidance, I'd like to comment on 2 recent events. As Elon indicated, we signed an agreement with Toyota in October To develop a full powertrain for the electric version of the Toyota RAV4, while we are still working on the final The specifications of the powertrain with Toyota, we currently believe that this contract when fully implemented will generate Approximately $60,000,000 in revenue for us. We expect to recognize this revenue for approximately the next 6 quarters. Once The specifications are finalized, we'll be better able to comment on the timing and the size of the revenue. In addition, we're developing a limited number of early prototypes for the RAV4 for about 9,000,000 And just as clarification, the sale of production parts will be a separate agreement when Toyota proceeds with the production of Secondly, last week, we concluded the $30,000,000 investment from This transaction resulted in Panasonic's purchase of 1,400,000 shares of common stock directly Tesla at a price of $21.15 per share based on the average of trading highs and lows From October 25 to 29. Panasonic owns about 1.5% of Tesla's When Panasonic approached us with this proposal to invest in Tesla, we felt that this was a logical next step Our multiyear relationship, one that began several years ago with the purchase of battery cells from Sanyo, which Panasonic now While we do not have an exclusive relationship with Panasonic, we are jointly developing a cell that's customized for our battery packs Next, I'd like to offer some thoughts on guidance. Since we remain focused on the long term objective of During the Model S, we will provide limited guidance on our short term financial results. Specifically, We'll provide annual financial guidance on revenues only. Accordingly, for 20.10, we project $110,000,000 to 100 and $15,000,000 in revenue. This guidance is unchanged from the last quarter. As we mentioned in the last earnings call, we do As the winter months are beginning in all our core markets, we may see Roadster deliveries dropped slightly in the upcoming quarter. Since we've always assumed this in our plans, we are comfortable leaving our revenue guidance Finally, with regards to Model S reservations, as Elon mentioned, we have received slightly over 3 1,000 Model S reservations as of September 30. We plan to disclose this number obviously. However, We will not provide further guidance on this number. Since we are not actively focused on getting Model S reservations at We do not regard the number of new Model S reservations received in any given quarter to be an indication of our performance, at least for the next year or so. I'd like to conclude at this point by letting you How excited we continue to be about our long term opportunities. This ends our prepared remarks. So operator, First question is from Patrick Aschenbult of Goldman Sachs. Your line is open. Hi, thank you. Good evening. Good evening. Just wanted to a couple of questions. On the RAV4 program, has trick version of that vehicle. Well, the Yes, there's a great deal of long term potential. But the approach that Toyota is taking and I think it's the sensible one, it's The one that Daimler has taken is to start off with a sort of A test fleet essentially that's on the order of a few 1,000 vehicles, then evaluate that in the market, Figure out what the market interest is in the car, iron out any operational Any kind of bugs? How do you does it work in all circumstances in environment with higher liability and obviously Toyota is going to be As is Diana, they're both very sensitive to reliability. So there's long Potential, but the initial phase of the deal as a final is in the sort of the couple of 1,000 units range. Okay. One other one. You'd mentioned Stage 3 kind of charging being something that was encouraging in terms of some of the testing you've done with your You've done with your powertrain program so far for the Model S. Is that something that you might actually plan to have available By the launch of the Model S or is that just something for later on down the road that you could make an option for further That's a good question. We do feel that the fast charging or just to be precise, what we mean Charging is we're talking about something which is approximately an 80 kilowatt charger that is a direct DC input to the battery pack. So it bypasses the internal charger in the So it bypasses the internal charger in the vehicle and goes direct to the battery pack. And That charger is something that's developed by Tesla and is essentially taking the onboard chargers that are in the car and Getting them together in effectively in parallel to provide the 80 kilowatt class The default car will come with either 10 kilowatt charge onboard charger or 20 kilowatt onboard charger depending upon what options you select. But that is something that we expect to have available coincident with the SODIT Model S production and we'll strategic locations along major interstates to deploy these fast chargers. This isn't quite the right time to talk about the details of those plans, but I think you'll start to see those plans get a little more fleshed In the second half of next year in terms of exactly where we would start deploying those. And but I think you'll certainly see it's probably in some of the places where we've already deployed charges for the roadsters such along the Highway 101 in California. And I don't want to go too much into detail will definitely something over time that we'll address, but to fundamentally answer your question, that is something we think is important and will be available at the time of Model S production. Okay. Can I push you for one last detail just in terms of the kind of charge time that you're sort of contemplating for that as you guys have an idea of that for that sort of fast charging option? Yes, it's a 45 Charge approximately. So the full pack size is roughly 70 kilowatt hours. So That means to an 80 kilowatt charger, we'll charge that in roughly 45 minutes, assuming that you're not going from complete to complete 100%, which is almost never. But you're going from somewhere something around 5% to 10% level to sort of 85% to 90% level, that's about a 45 minute charge. Okay, got you. Lastly, I guess just one more strategic question. Since you have sort of last interacted with most of the investor base during the IPO, Can you tell us a little bit if anything on the competitive landscape has changed for you guys, either Plans for new entrants on the car side or maybe even on the battery on the powertrain I can't say that there's been any significant change that we're aware of. In fact, if anything, I think the actions of Toyota would affirm that Tesla is the technology leader in this arena. Yes, there may be obviously, there may be things we're unaware of, but as far as things we are aware of, don't see any change. Okay, great. Thank you very much. Thank you. Our next question is from Rod Talash of Deutsche Bank, your line is open. Hi, everybody. I was hoping you could just elaborate a little More on the outlook for the battery pack business is sort of a revenue opportunity. If you sort of aggregated the Smart, the A Class, the For another things that you're targeting, what would you anticipate is maybe a year or 2 from Now, this battery pack business actually representing not the development cost, but actually in terms of the technology sales? You mean, Ryan, as you know, we've always been a little reticent to make any kind of predictions or on the Powertrain side of things, because it's difficult to predict the decision that It's so dependent on the decisions of like maybe a dozen OEMIC CEOs And their associated teams. So it's in part dependent upon Tesla's performance, but it's in part dependent upon There just what they decide strategically. So we've always really downplayed the powertrain business, But it's something that has a lot of potential. But unlike cars we make ourselves, where the consumer is a fairly objective Decision maker and where we feel like Destiny is really much more with something We can control our destiny in that situation. So we're more comfortable making predictions there. But I just I'm just Not super comfortable making predictions when it's dependent on just the decisions of a small number of people at the strategic level. You mentioned about a dozen CEOs. Should we take that to mean that there are other automakers that you've had discussions with that might be Yes, there certainly Are there conversations that are happening? It's difficult to say whether those will materialize if anything real. I There's a good chance that there may be one of them that is, but we also have to factor in what Tesla Really handle, if we take on too much business too soon, we won't be able to do a good job for everyone and still keep the Model S So there are actually different deals that we've turned down that We thought which is not a good use of resources, because we initially believe in how that Product would that would end up being a compelling product or that it would be a sufficient scale. So there are many conversations and I think that there's And I think that there's a good chance that there'll be some additional deals. But we aren't vigorously pursuing those because we do want to make sure that we execute well on the Model S, on the Daimler business and on the Toyota business. Okay. Can you maybe just Elaborate a little bit more on the cash walk, maybe just comment a little bit about just when you net The timing differences, how would you expect cash to end up at the end of the year? Where would the debt be, If you can. And then also in terms of the just as a separate question, when you look out at the development of the Model S, what at this point Appears to be the biggest gating factor. If anything, is there something on the horizon that you would call out as being the biggest Challenge that would maybe cause the timing to move, if anything, on the launch of the Model S? Mike, do you want to I'd prefer not to answer specifically what our cash position is, but I think as I've shared Clearly, we have a well identified piece, which is reimbursable from the DOE. And sometimes we have There was a lag effect depending on the whole process of reimbursement and also how we use the dedicated account. But I think you'll have full clarity and Visibility of how cash is being spent and how it's coming in on an actual basis. Deepak, have your expectations for capital Has that changed at all, just given the comments you've made about how you're able to buy equipment on pennies on the dollar? Has there been any update to your expectations On the capital spending associated with the project? Overall, on the Model S, our spending It's in line with our broad plans, including our planned contingencies that we So there's been no fundamental change. Okay. Yes. And I'd say, just to add a little bit of color So that is we've achieved just I think some amazingly great deals on automotive It's like literally in some cases less than the scrap value of the metal of But we've also decided to make some additional expenditures on the Model S program Add some features here and there, make the car incrementally more compelling in one place or another. And so it sort of balances out to some degree, but overall we're pretty much tracking to our expectations On capital expenditures, an example is like Panoramic Group, that was In the original thing for Model S, but and we looked at outsourcing the Panoramic Group. We didn't find one Panoramic Group that was just perfectly done. And so we really we put together a team and we're making a Panoramic Group that's really I think it's going to be best in class or best in best really, not best in class, best. It's roughly very focused on the The aesthetic appeal of the vehicle as well as the functionality, we want this to be something that is fully supportive. The words in words is, Zeland, it must be really, really good looking. And in terms of gating factors, Milestones that would be represent a bigger challenge that could move timing around. Is there anything in your mind that Did you need to clear in terms of hurdle to that can change the timing? No, it's looking pretty good. I think my answer on the timing risk would be what issues Drive right timing risk would be really kind of what I thought earlier this year, which is when you The final, final systems integration and you're really refining the details of like the safety systems and the airbag functionality and the Nuances of the crash testing and achieving full 5 stock crash safety certification by 2012 Which is a much higher standard than the 2010 standard. It's getting all those nuance Just right. So it's a very high standard that is really the risk at And that's I mean, people will see a card Towards the end of next year that is to all appearances indistinguishable from a production car, I think you said, well, why are we only delivering cars in mid-twenty 12? It's because perfecting the details And that's I think, although somewhat of a nebulous answer, that's really I think what I would consider to be the timing risk is that We won't ship the car unless it's really great. Okay. Thank you. Thank you. Thank you. Our next question is from Joshua Paradise of Morgan Stanley. Your line is open. I wanted to check A little bit on the RAV4 project and trying to understand how the powertrain that you're developing for the RAV4 either overlaps with or is different from the Model Last one, do you have the same teams working on it or different teams? Yes. There are a lot of Similarities between the RAV4 powertrain and the Model S powertrain. Obviously, The RadVal contract is to integrate with RadVal, modelized contract is to integrate with the modelized. So the system integration That are different between the 2, but The core elements will be substantially similar between the Model S and the RAV4. So It's it affects it does create a little bit of a drag coefficient on List development, but more on the systems integration side rather than the core elements. And it's something that we're making sure does not affect the overall timing of the Monlist program. Okay. And then the intellectual property that gets developed in that process, does Tesla own all of that? Does Toyota own Can you go and potentially sell it to or use it for another OEM? The core elements Remain Tesla IP. And but the things that relate to the systems integration with RAV4 are So it certainly it's possible for us to sell powertrain to a manufacturer. We're not constrained in that regard. And we have clear ownership of Tesla IP in this circumstance. So yes, we didn't prevent us from doing Other deals does constrain us with the Model S, but as one would naturally assume anything which is proprietary to Toyota vehicle remains with Toyota. I should point out also that the drive for battery pack is a smaller battery pack In the Model S, it's on the order of a 40 kilowatt hour battery pack. So it's a comparable in size to what's Great. And then just one more. On the rooster sales in the quarter, can you give breakdown of how many of those were in new locations, new stores and what the same store sales trends look like? We're not really releasing that level of detail. And I'm not sure at this point with the roadsters being Yes, there's not a huge number of roasters being sold. So it's not a I'm not sure what could Specifically relevant trends from that. So I think that's going to become a much more important question as we get into the Model S. And we don't believe that same store sales is a relevant metric because sales of our own stores happen through a variety of channels. Yeah, So I thought to trace exactly where the sale originates. It's not like Starbucks would be much more of a localized phenomenon, but there are many cases, particularly for the Roadster, where our clientele Coming through New York, but they live in Dubai or they Live in Luxembourg and they're going through London or something like that. And that's why we've got we've got roasters live Now in 31 countries and we only have like 14 stores open right now. 15 including Tokyo, right? Yes, 15 including Tokyo this week. Right. Okay, great. Thanks a lot. Thank you. Our next question is from Jeff Everson of Dougherty and Company. Your Good morning, gentlemen or afternoon. Thank you for taking my questions. I guess my first question is, Have you recognized any revenue from the $60,000,000 development contract with Toyota? Jeff, Deepak. We signed that contract in October. So we have not recognized any revenue related to that 60 $1,000,000 contract in Q3. However, we have started shipping early EV prototypes of the RAV4 Based on the earlier agreement that we signed with Toyota and we have recognized revenue related to that in And that would have gone through the automotive sales line, correct? No, that would have gone through the development Services revenue line, because that's a development program. So it's not a production. It's very small number. Yes. Sure. Okay. I certainly heard some of the chatter that You might actually evaluate doing some of the build of the RAV 4s in Fremont. Could you talk a little bit about your thought process around that decision? Yes. Well, to be clear, this is very much a Toyota So I mean, they're our customer and we'll do what they'd like us to do. But we do think that There's some wisdom and value in doing final assembly at the Fremont It's going to be really up to Toyota to make that final decision now. What is of that value versus what are some of the trade offs you see, Elon? Well, particularly in Initial fleet, I think being close to where the powertrain is manufactured is valuable. So if there are There are any issues, bugs, whatever that needs to be fixed with the powertrain, The RAV4 gliders are close by and we can make those changes effectively. I think there's definitely some symbolic value. And Yes. But I think it's just being close to where the powertrain is produced is at the point of final assembly is probably wise for the Initial production, I wouldn't expect that the long tail if the RAV4 moves to a more of a high volume situation, I would expect that probably is at Toyota plant, but where we think there's some value initially at least during the And Jeff, just to clarify, as I mentioned earlier, the revenue from the sale of the production powertrain components of Yes. I got that Deepak. Thank you. So moving on to Model S, could you talk about some of the key learnings You've had so far from the initial testing of the Model S powertrain? No big surprises really. We've now done multiple iterations on multiple powertrains The roads to certainly multiple iterations and battery packs with the A Class, Mercedes A Class and the Smart Car. Overall, it's looking good. I mean, I think we're expecting to make significant cost As well as performance improvements in the battery pack, motor, transmission and power electronics. The packaging It's incredibly compact, which I think is great. It allows for a huge cargo capacity The Model S is looking like it's going to have twice the cargo capacity of roughly twice the cargo 5 Series BMW, which is and it's about the same the Model S is about the same size outer dimensions as a 5 Series and it's looking like you'll Twice the cargo space, which is pretty cool. Okay, good. And then Would you be willing to share what the leasing mix was in the quarter, please? Our leasing mix in the U. West market was about 30%. And overall, in the Considering all our sales, it was about 20%. Okay. And then Can you give us some sense of what we should expect for share count next quarter? And what would shares have been in this quarter, Fully diluted shares of Bentley, if you'd been profitable, if you have that number? I don't have Yes. So if we were profitable, we would be using 97,800,000 shares for Q4. Our Q3 numbers were weighted average based on when we went public, Q4 is more an indication of the full quarter, right? And at that time, it will be 97 $28,000,000 Call it $98,000,000 That will be $98,000,000 as well. Okay. Yes. $98,000,000 Approximation, yes. All right. I guess one other quickie. Correct me if I'm wrong, but is operating lease vehicles net on the balance sheet a new line item What is it? Yes. We just broke that out to clearly show what we were carrying on our balance sheet for the leased roadsters I thought you were outsourcing that. The leasing, The financing in a sense for that is coming from us. We have partnerships on the retail financing end with Bank of There are other banks providing retail financing, but on leasing, it's been done through us directly. Okay, great. Thank you very Thank you. Thank you. Our next question is from Himanshu Patel of JPMorgan. Your line is open. Hi, good Couple of questions on the Panasonic relationship. You've been working with Sanyo for I'm just curious, what was the impetus for them taking an equity stake now? What kind of changed recently to kind of come to this stage at this point? Yes. Just to be precise on the Sanyo versus Panasonic. So initially, in the early days, our relationship was just directly with Tanya. In the last, Say, 3, 4 years that's transitioned to primarily a relationship with Panasonic With Panasonic and then Panasonic acquired Sanyer, so there's good complicating matters. So But the if you look past the acquisitions and look at the actual sales, the initial sales we were working with Sanyo, but then they transition Panasonic sales with the Panasonic part of Panasonic sales with the A Class and the Model S and so forth. So as far as what was the impetus, I think It was essentially just to have a closer relationship with Tesla. I think they I see a lot of potential in us. And so sort of a gesture of Space and support and interest. As I said, there's no contractual obligation that we have to buy Panasonic sales, But they are our and they were independent of any investment. They were our sort of preferred source of sales, they make the most advanced lithium ion cells in the world. So I think it's sort of just I want to suggest for friendship, if you will. I think they see long term value as a strategic partner. Yes. Tesla and they want to cement that. Yes, Okay. I'd still encourage you to ask them directly. But I think as with Toyota, it was sort of Just and with Daimler before that, it was kind of just how do you bring And then, Elon, you mentioned that the RAV4 battery pack is roughly 40 kilowatt hours sort of similar I think the A Class. Has there been any thought by Toyota and Daimler to do some co collaboration here on Some of this stuff jointly with you and kind of some sort of 3 party structure? They've not talked to us directly about that. It's possible there may have been strategic talks at the Toyota Daimler senior level. And I know that companies do cooperate in some other areas. But I can't I don't want to speak for them as far as any 3 party Relationship. Okay. Using visual image there for a moment. And then lastly, going back to the issue of RAV4 Electric RAV4 production potentially at Numi. What are kind of the governing factors from your perspective as to why you would not do it? Is Simply just is the negative here simply that could be sort of a big distraction to ramping up the Model S? Is that sort of the long and short why you would not want to support something like that? Well, I think it's fair to really wanted us to. We'd look at trying accommodate them. But yes, I think it's really I want to make sure we're laser focused On bringing the Model S to market on time and making it a superlative car. And so Just in terms of a focus, it's a question of focus. I think it's going to be wise for us to really be Focused on the Model S. I think a lot of fast growing companies try to do too much too soon and end up They're not doing a good job. They're doing sort of mediocre job in a number of areas. And so we just want to be really focused on The primary activity, which is bringing 1 less to market, making sure it's a phenomenal car. And where are the Gliders coming from? What physically what location are they going to be produced in? I believe the RAV4 plant is in Okay. Very good. All right. Thank you. Thank you, sir. Next question is from Patrick Archambault of Goldman Sachs, your line is open. Hi. Yes, just actually one housekeeping one. Is there any chance you could give us In Q3 Roadsters in the U. S. Were deliveries were slightly over And the rest was Europe and Asia Pacific? Yes, with most of that really being Okay, great. Thank you very much. Thank you. I'm showing no further questions or comments at this time. I like to turn the call over to management for any closing remarks. Really, I think, we said pretty much I'll try to address any questions people have. So thanks everyone. It's going an exciting couple of years, but I think not always with good news, but I think mostly with good news. Thank you. Thank you. Thank you. It's you and Detroit everybody. Yes, see you then. We definitely was coming to Detroit if you can make it. It can be cool to see that the exploded view of Model S. All right. Bye. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect and have a wonderful