Earnings Call: Q4 2012

Feb 20, 2013

Good day, ladies and gentlemen, and welcome to the Tesla Motors 4th Quarter 2012 Financial Results Q and A Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Jeff Evanson. Please go ahead. Thank you, Patrick, and good afternoon, everyone. Welcome to Tesla Motors' 4th quarter financial results question and answer conference call. I'm joined today by Elon Musk, Tesla's Chairman, CEO and Chief Product Architect and Deepak Ahuja, Tesla's Chief Financial Officer. We announced our financial results for the Q4 and full year 2012 shortly after the close of the market today. The shareholder letter, financial results and webcast of this Q and A session are all available at our Investor Relations website at ir. Teslamotors.com. Today's call is for your questions, and we would like to keep the call to 45 minutes today. We will conduct the Q and A session live. And I would like you to try to limit your questions to 1 question plus one follow-up question. During the course of this call, we may discuss our business outlook and make forward looking statements. Such statements are predictions based on management's current expectations. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent 10 Q filed with the SEC. Such forward looking statements represent our views as of today and should not be relied upon after today. We also disclaim any obligation to update these forward looking statements. And now Patrick, could we please have the first question? Our first question comes from Ben Kallo from Baird. Your line is open. Hi. Thanks for taking my question. So I think one of the things that investors will be focused on is the amount of churn. Could you guys just talk about where you're seeing that churn? And then how much time do you think it takes for it to level off? Yes. I mean, I think you're maybe referring to I think there was there have been some articles about like Tesla wait time is reduced to like a month. Is that maybe what you're referring to or Yes. We could tie that in there too because I've heard this argument out there that you call the store and they say that I can get my car in a month or 45 days. So maybe you could tie that into also and having the record level of reservations, but then having kind of some people opt out of or take their money back, their deposit back? Yes, absolutely. So I think there was I think some articles out there that don't really accurately describe the situation. The average wait time now for a car is about 5 months. However, there are some configurations which are available in more like maybe 6 to 8 weeks, which are the very high end reservations. So but it should be pointed out that like we really are still talking about an average wait time that's on the order of 5 months. And in fact, if we were to close all of our stores right now worldwide and not have any product specialists or salespeople, we would still sell out through the year. So that's maybe an important thing that people don't quite appreciate. And I guess if you could just elaborate on how you're seeing demand pick up in other places outside of North America and what we should expect as the year progresses there? And I'll jump back in queue. Yes, absolutely. So right now, we've really done almost no Model S sales in Asia and we've done very limited amount in Europe. In fact, we only have 2 cars in all of Europe. That's going to change dramatically in the next few months and we're going to start marketing heavily in Europe and then start doing the same in Asia. We feel very confident of achieving a demand level in excess of 20,000 units a year. And I mean, I think we'll see quite a bit larger than that number as we expand to Asia and Europe and actually start marketing there. I have George Blankens here with me. George, do you want to add anything to that? Yes. We had a press event, a preview in Europe at the end of October and it was received very, very well. At this point, the interesting thing about Europe is that we're getting a nice response in reservations and we don't even have any display cars there yet. We will over the next couple of months as Elon said, we'll be actually sending displays cars over there. But right now, we're still transitioning out of Roadster and into Model S in the stores without any display cars and still having a nice pickup in European reservations. As far as Asia goes, it's announced we've announced previously that we're opening in China our first store later in the spring and we expect real positive results there. And we're just now starting to show Model S in Asia, in Hong Kong and Japan with stores planned for there in the latter part of this year. So we really haven't started actually displaying our car to customers hardly at all anywhere outside of North America yet 25 about 25% of our reservations are outside North America, right? So, and in North America, you probably saw in Q4 in our stores in North America, we had 1,600,000 people go through the stores just in Q4. So that's still it's wintertime, so don't have as much traffic as you do at Christmas, but we expect to have lots a really nice increase in traffic in our North American stores this year. So the stores are working. Thanks guys. Congrats on the progress throughout 2012. Thank you. Our next question comes from Ben Schulman from Pacific Crest Securities. Your line is open. Hi, guys. Thanks. Can you give us any idea of what the regulatory credit revenue was in Q4? Deepak, do you want to comment on that or is that I think for us the way we look at regulatory credits is that it's great to get that. It's a positive stream of revenue, but it's unpredictable. And as we look forward, we are much more focused on getting to profitability and achieving our targets without the benefit of the regulatory credits. Yes, exactly. Exactly. And in fact, Harry, just to clarify further, as people may recall, there were 3 firm things that I promised we would do that we would start production last year earlier than July and we started in June that we would get to 20,000 units a year and that by the sorry that we would deliver 20,000 units in 2013 and that by the end of 2013 we would exceed 25% gross margin. And I want to be clear that, that 25% does not include regulatory credits. Okay, great. And then can you maybe give us an update on the quality control situation just in terms of what percentage of the cars are still getting some sort of post production touch up work? We actually don't have those figures handy. I wasn't expecting that question. It's dropped dramatically. I think the ability for us to produce cars at a steady rate of 400 plus a week is very much linked to our ability to produce quality cars on the line. And so those go hand in hand and it's continued to improve significantly. Yes. There was a time several months ago where every car that came off the line would require some degree of rectification. But now that is a fairly small percentage. I don't know the exact percentage on hand, but it's a fairly small percentage. And the other thing that's also worth noting is that anything which is software related can be addressed by an over the air update, which is something that no other car company can do. And I think that's actually worked quite well. Great. Thanks, guys. Our next question comes from Patrick Hartman from Goldman Sachs. I guess my first question is just given what you've said when you're looking at net reservations, I think you said cancellations were going to be similar to what you saw in Q4 production. You have obviously the guidance of 4,500. Obviously, dependent on sort of what you do in terms of reservations during the quarter, but it sounds like that net reservation number is probably going to grind down a little bit in Q1, maybe even Q2 before kind of peaking up again. And is that correct? And how do you think about the trajectory of that overall net reservation number for this year? Well, our intention is really not to have people wait 6 months for a car. We'd much prefer that our demand generation and production are closely synced so that when you order a car, you get it within less than a month. Really, you'd ideally want to get a car within maybe a few weeks or something like that. So it's not our intent to have a long waiting list. I think that's pretty inconvenient for people. The limitation on production, where we said we think we can do at least 4,500 this quarter, That is not in any way a demand, just to be clear, in any way a demand related thing. That is purely a function of us being able to do steady state production and do so efficiently. Our focus in Q1 is on production efficiency, improving gross margin and making sure customers are really happy when they receive a car. So it's important for us I think to operate at that steady state for a bit before we try to drive the number higher. But I do want to emphasize we are not demand constrained. We are intentionally production constrained. So yes, I mean so that's, I think, a really important consideration. Yes. Yes. That's helpful color. If I can just squeeze one quick one in for Deepak on cash flow. I think you said Q1 would be breakeven. Can you just help us from a modeling standpoint think about the cash flow cadence as we're working through 2013? When is it that you would expect to move to positive? Understanding that there's obviously some seasonality elements to the production and working capital and what have you? Patrick, I mean our focus, as Ynon indicated, is on a variety of cost reduction and operation stabilization projects, which are all going to help us continue to generate more cash from our operations as each quarter goes by. Not sure if I can give you any further guidance beyond that. We feel very Okay. But there will be it will swing to positive during the year. I guess, would that be the Of course. Of course. I mean and then we just continue to grow on that. Yes. I mean I think it's perhaps worth emphasizing at this point which is we really have very high confidence that we will have a profitable Q1. And this is only the first this is the very first quarter that we actually have been at our target production rate. So we've had very little time to work on production efficiencies, improvements to gross margin and all that. And despite all that, due to an enormous amount of hard work by a really dedicated group of people at Tesla, we're going to be profitable. And that's I think that's a pretty big deal. And I mean that's really an enormous amount of blood, sweat and tears to get there. Okay? Really can't it's difficult for me to overstate the level of difficulty. But we're going to do it. And that's I think so we're really, really, really proud of that. And I feel like we're halfway through the Q1 and we can say that with confidence. Great. Thanks a lot, guys. Our next question comes from Adam Jonas from Morgan Stanley. Your line is open. Good evening, guys. This is EJ in for Adam. Could we step through your 1Q guidance for a bit? Given your guidance for 4,500 deliveries, mid teen gross margins and that you're calling for a 15% reduction in R and D versus 4Q and for SG and A to increase moderately. I'm having a bit of trouble getting to the slightly positive net income on a non GAAP basis. Is there any re bucketing of R and D costs going on? Or are there other significant developmental service revenue that we're missing here? I think if you consider the combination of more or less sales or power train sales, development revenue and mid teens gross margin. I think the guidance would probably lead you to somewhere along those lines close to something in the breakeven range to slightly positive, should be close to breakeven, and we're hoping to beat that. Okay. So there's not really any rebucketing of R and D going on? No. Okay. We're not playing any accounting games, and this is very much a function of Model S, not other things. Got it. Switching gears to CapEx for a second. I think you guys had previously expected about $240,000,000 of CapEx for full year 2012, but ended up, I think, a little over $270,000,000 Is that something that you pulled forward from 2013? Or is there something structurally that we should be looking out for here? We had some amount of pull ahead of completion of production tooling and completion of some of our equipment in house, which resulted in higher CapEx as well as some of the infrastructure for the store and IT infrastructure. So overall, I think it was a bit of a pull ahead, but it's not surprising at the end. Okay, great. Thanks very much. Our next question comes from Aaron Chu from Maxim Group. Your line is open. Hey, good afternoon, guys. Thanks for the question. I was wondering if you could just drill a little bit deeper into the slower pace of reservations in Jan and set to date following the price hike going into effect at year end. Is it safe to say what you're saying is it's down from December, but still over the October, November levels? And then maybe just given the big jump from 3Q to 4Q, if you could just highlight if it's pacing above 3Q and below 4Q or where you're at a little bit more in detail? Actually, I'm not sure what I would I don't recall, Ann, what our 3rd quarter numbers were. I think, Aaron, like the key point to bear in mind is like as mentioned earlier, it's like we have enough reservations right now to fill out the year. And just on sheer momentum, sell every car we make, even if we close every store we've got. So there were certainly cancellations in January that were as a function of asking people to confirm. So we're trying to clean out basically anyone who wasn't serious about buying the car. But I don't think those are indicative of demand for the rest of the year. So if you Okay. Sorry. George just confirmed, yes, definitely higher than Q3. Okay. But if you exclude the sort of reservations that were or the cancellations that were just as a function of asking people to confirm their order or not, we have a lot of demand in North America. And I'd say for well in excess of half of about 20,000 unit per year demand or production target. So you may have heard me say this before, but where I think kind of demand breaks down between Asia, North America and Europe is something like 10 to 15 in North America, probably 10 in Europe and maybe 10 to 15 in Asia. But it will take us some time to build up Asia, particularly China. So it doesn't really affect, I think, this year all that much. I'm quite certain that we'll deliver more than 20,000 cars this year. And that's not really a concern. Like I said, literally, we could say goodbye to every store and every salesperson and still meet that target. But we want to make sure that we've laid the groundwork for an improvement above 20,000 units a year in 2014. So as we're thinking about demand generation, it's really not about this year. It's about how do we exceed the 20,000 unit number next year. Okay, excellent. And then if I could just real quick to the production side. Now that you've fully reached your target rate of production for the 20 ks pace, just wondering if you've been able to identify sort of how much flex you may have in that on a weekly basis, I mean, especially if you're thinking the 4,500 in 1Q. Is that up to 425 potentially, 450? Or is there a way you can maybe quantify that just so we can understand sort of how you're able to meet that 20 ks sort of in the back half? Yes. I think our production rate will be in excess of a 20,000 unit a year annualized rate in the second half of the year. For this quarter and for probably most of next quarter, you have to decide what the relative focus is. And I think the important thing for us to focus on right now is production efficiency and improving gross margin rather than scaling our production. And like right now, we've got a pretty large number of temporary workers and that essentially were hired to deal with manufacturing inefficiencies. And it's really important that we improve the manufacturing efficiency and can reduce the number of temps essentially. We still expect to see an increase in full time employees from beginning of quarter to end of quarter, but it's really important that we make some progress, significant progress in reducing the size of the temporary labor force and addressing the manufacturing efficiency, getting inefficiencies. Any company you've got to focus on what's important at any one time and production efficiency. Thanks, Stu. If we wanted to, we could raise production right now to 500 units a week. That's probably what we could do right now. But it would do so at the expense of efficiency and we'd have a lot of overtime and that kind of thing. So right now, it's really just production efficiency the risk of being repetitive, sorry. All right. Very helpful. Thanks so much for the question. Our next question comes from Amir Roslodowski from Barclays. Your line is open. Just following up on that question of focus, Elon, is really sort of optimizing your workforce the primary barrier to getting to that 25% gross margin target given that you are relatively a stone's throw away from sort of your optimal production rate? There's a number of things. I mean, I'd say generally speaking, the car business is a pretty cost efficient business. I mean, it may not be great at a lot of things, sort of breakthrough technology and that kind of thing, but it's pretty good at cost optimization. And so in order for us to be competitive, it takes a lot of work on all fronts. It's certainly reducing the labor hours and the amount of overtime. I mean, in December, even though we were cash flow positive and sort of profitable on a per car basis when all things are considered. The amount of overtime that was required to achieve the $400,000,000 cost per week was pretty extreme. So that has improved dramatically just coming into January and then February. We've gone from like I think it was an average of over 60 hours a week, almost 70 hours a week in December. Yes, exactly. We did something. In fact, it was somewhere between percent 70% above 40 hours. In other words, it was like an average 68 hour week that people worked in December, which is also like it's a tough thing for people to sustain just on a burnout level. But it also drives the cost to a pretty extreme level because above 60 hours a week you're actually double time. Above 40 hours a week you're in overtime. So now we've gone to down to the point where we're at maybe a 50 hour week, So from something like a like I said, like something like almost a 70 hour week average in December to about a 50 hour week now and then driving that to kind of the mid-40s in March. In addition to reducing the total number of people needed to get the car. So the labor hours per car are dropping dramatically. That's maybe the single biggest factor. But close behind it are things like logistics and supplied parts. So another thing that we had to do that was really inefficient in Q4 was we had to fly a lot of stuff. And when you fly something, it can cost as much as 10 times what it costs to ship it by sea or rail or truck, particularly if it's heavy. And so we have to do some pretty dumb things like fly tires from the Czech Republic. I kid you not, that was like one of the I wanted to punch myself in the face for that one. At the risk of boring around, I'll just give you like a little anecdote that there are like 100 things like this. But as it turns out, we have a supplier for the 21 inches tires that's in the Czech Republic. And it was taking we have terms of we have 30 day payment terms with them. And when they were shipping the tires, it actually took longer than 30 days to get to us. So the tires would get to us and would be past due. So that happened like a number of months and then they put a hold on the shipments because we hadn't paid on time even though we weren't getting the tires before we were getting the bill. So then they put the hold on that. And then we saw the anyway, so that was just sort of a big task where to fly a bunch of tires from Czech Republic to keep production going. But that gives you one sort of extreme example of how logistics costs can go bonkers. And that's also dropped dramatically in the Q1. And then in terms of supply parts, as I mentioned, there's a huge number of supplier cost reductions taking place because just as we have inefficiencies, so do our suppliers. One of the biggest challenges we actually had and I don't mean to unload on you guys on the call, but the industry estimates for the number of cars that we make were quite low. So for example, there's an organization called IHS, which does industry estimates on production volumes. They had us down at 1500 units a year. And so for a number of our suppliers when they didn't look at our forecast, they looked at the IHS forecast and they didn't believe our forecast. And so they pulled up for some P and E number of parts, so that very low production volume. And then we're caught flat footed when we said no, we actually did mean the order that we sent you. We're making 20,000 units a year, not 1500 units a year. And we've had a number of such conversations where our suppliers finally realized that we weren't kidding about that and took the steps necessary to supply us with the parts. And I think we're starting to get beyond silly things like that and get into a steady cadence of production. And suppliers are starting to take our volume seriously and to offer us prices that are actually competitive in the market. I think, Bags, anything you want to add to that? No, I think those are all very good points. Plus, our engineering teams are working closely in identifying efficiencies and material costs both internally and with our suppliers. So that's a huge focus, which is bringing a lot of costs down, very positive momentum on that. And then sorry. I was just sorry, one thing I should add is like for a number of our suppliers, we actually have price breaks that occur at certain volume levels and at certain calendar points. In particular, for example, with that, I deal with Panasonic, that's a huge factor as the cost of the cells have after pack drops and that's been quite helpful. So I guess given where you are in terms of your production now and some of these issues seem to be in the rearview mirror. I mean, what is your sort of comfortability in sort of meeting or even exceeding that 25% target? I'm highly confident that we'll be above 25% gross margin without considering 0 emission credits by the end of this year. Great. Thank you very much for the incremental color. You're welcome. Our next question comes from John Lovallo from Merrill Lynch. Your line is open. Hey, guys. Thanks for taking the call. Hey, John. First question, Ilan, would be for you. Despite all the noise in the press and all the back and forth, I mean, do you see kind of the potential necessary additional planning for a driver of an electric vehicle? I mean, do you see that as a headwind? Are you hearing that from anybody? I think for a long distance trip that right now depending upon where you're on the country a little bit of extra planning is needed. I think if you're in California or Nevada it's we've got a good density of superchargers for long distance driving. So you don't really have to worry about it. The ideal density of superchargers is maybe around every roughly every 120 to 150 miles, whereas right now on East Coast from D. C. To Boston, it's about every 200 miles because we only have 2. But we have a bunch more superchargers that are going into the East Coast and across the country into Texas, Seattle area, Chicago and really want to get to the point where you don't even have to think about it. And I think we're very close to that point. So this is some distant point in the future. We're very rapidly deploying the network of superchargers and we're hooking that into the software in the cars. The navigation system will automatically route you to superchargers. So you just plug in wherever you want to go and it'll just route you and route you through the supercharger network to get where you want to go so you may have to think about it. And all that's going to happen like in the next several months. It's not far away. And I mean, I think when people actually use the supercharger system, which is free by the way, it's like that needs to be lost in this whole debate. Like with what car do you have free long distance? It's pretty freaking great, I think. And we're continuing to improve the rate at which the supercharger can put energy into the car. We've deployed some of the solar panels over the superchargers. We're going start playing a lot more, which cuts our cost of electricity down. And it's pretty awesome, I think. And then there's we've got a fairly, I think, meaningful announcement about a step change in supercharging technology coming later this year. That's actually originally what we were going to that's sort of originally what we wanted to do the article with the New York Times about. I don't know who knows maybe we'll ultimately do it with them. But I think that's going to be people are going to be pretty interested in that announcement when it comes out. And this whole thing of like does the car work in a coal? And it's like, yes, it works really well actually. And we're going to make it work even better over time. So it does lose 10% of its range in we know if it's very cold, but so do gasoline cars. People kind of forget about that too. Okay. That's very helpful. And then Deepak, the Q4 step up in developmental services revenue, was that more of a kind of a true up from the Q3 where possibly some of that Daimler revenue got pushed back? Partially, yes. That's right. Okay. Thanks very much guys. Our next question comes from Dan Galvez from Deutsche Bank. Your line is open. Good afternoon. You guys have probably by this point asked most of your current U. S. Backlog to configure their vehicle or to confirm. Just want us to know what you've learned about likely ordering patterns in terms of battery size, options, etcetera. And do you have any sense of where average transaction prices may shake out this year? Well, it's definitely more people are ordering the larger battery pack than we thought. It seems to be that like I can say like less than 10% of people are ordering the 40 kilowatt hour pack. That's an interesting data point. Not saying that couldn't change in the future, but that's what we're seeing right now, sort of maybe 10% or less. A majority of people are ordering the big battery pack actually which is again I wouldn't count on that in the long term, but a majority of people are actually more than 30% are ordering the 85 kilowatt hour pack, which is a positive surprise. And hopefully that continues. I think that's the best experience somebody can have with the car. So hopefully that keeps going into the future. Any revenue outlook for this year that you could provide for us? In terms of average transaction prices or I guess our inclination is to take it 1 quarter at a time, but it's looking I don't think we'll be disappointed by the revenue numbers this year. I think it's I think people will be we'll react positively to the revenue number that occurs in this year. And then obviously we want to make sure that we've laid the groundwork this year for a meaningful increase in 2014 as well. Okay, great. And one other one, how much in terms of deferrals are you experiencing as you go through your reservation book? And just wondering like how many people are really looking for a U. S. Leasing And if you could provide us any update on the likelihood of a U. S. Lease this year, that would be great. Thanks. Yes. Well, we do see some deferrals taking place because there's a we have a new color coming out, which is actually a really great color. I have to admit it is a really great color. We spent a lot of time on that red. But then I'm suggesting anyone delay their order, but it is an awesome red. So we've got a lot of interest in that. There's a segment of people that don't want the air springs even though I think that's actually something people should really it's worth getting, but some people don't want to get it. And so there's a little bit of deferral on that front, but we're not really seeing deferral. It was the deferral concern options aren't available right now as opposed to other reasons really. And then sorry, what was the second question? Leasing. Leasing, yeah. So all of the sales and all the things I mentioned thus far are with 0 U. S. 0 North American leasing. So we don't even offer leasing in North America. That is something that we do want to offer maybe second half of the year. So we want to make sure that the terms of the lease like the interest rate and all that are compelling. Even if we did 0 leasing in North America, we could still sell all of our production this year. So leasing is entirely optional for us at this point. And we only want to come out with a leasing product that's compelling. We don't want to come out with a kind of a land leasing product. And we are talking with some of the major financial institutions a lot about doing leasing. And those talks are progressing in a good direction. But in order for us to get the best rates for our customers, I mean, we're not really interested in making a bunch of incremental money from leasing, but we want to make sure we get a good deal for customers. It's important for the for those big financial institutions to feel really comfortable with Tesla. And that's why one of the reasons it's going to be really helpful for us to be profitable this quarter and subsequent quarters is to give greater confidence to the large banks in giving us for our customers a good leasing interest rate. I guess that's usually accompanying to the big financial companies. And I do see long term, not so much this year, I think this year leasing is going to comprise a very small percentage of our volume. I do think next year leasing will be a big factor. And within Europe, it will be at least a moderate factor to this year. We already have a significant leasing deal signed with Athlon, which is one of the major European leasing companies. Okay. Thanks very much. Our next question comes from Elaine Kuei from Jefferies. Your line is open. Hi, everyone. Congrats on hitting some pretty big milestones this quarter. And actually just following up on the demand generation for 2014, I was curious what percentage of the new reservations you're seeing coming from stores and are you seeing a pretty good correlation there with ideas for the next steps in marketing, do you pursue some traditional automotive channels or are you still primarily going to rely on the stores and perhaps word-of-mouth or other alternative methods? There's nothing better than word-of-mouth, which has really been fantastic. In fact, we see a lot of demand occurring where we've delivered the most cars because that's where the most word-of-mouth occurs, which I think is a really good predictor for the future. As for the stores themselves, George? Yeah. What we're seeing in the stores is that some people come in, they see the car and they want to put a reservation down today. Oh my gosh, how do I get one as soon as possible? Other people that want to come back, they want to ask some questions and they keep coming back. And the beauty of the store is that they're located in locations where people frequent on a regular basis, so they don't to go out of their way to stop back and ask future questions. So that's working really, really well. I think when we start looking at 2014 and 2015, I think what we need to do is step back and understand that in our segment, the Model S segment of automobile sales worldwide, less than 30% of them are done in the United States. So there's this massive opportunity for us as we go international where we haven't even tapped it with one new design store yet. Like none of the stores we have anywhere in the world are like the stores we have in North America in a high traffic shopping center. We will start doing those this year, so we can start having the same results and getting in front of people elsewhere outside the United States like we're doing here. And that's one of the things we're going to do in China. We're opening up in this really, really great shopping center in Beijing in the spring that is a high traffic location. We've got one scheduled for Hong Kong. We've got one scheduled that we're looking at in a couple of other countries in Europe. And when people come in and they interact with us when they're not thinking about a car, it's like the best experience you could have with them. And then when it comes time to buy a car, they think, oh, that's where I want to buy it and that's where I want to buy it from. And as a result, the longer a store is open the more cars that are on the road around those stores, the more effective the stores become. So the longer stores open, the better. That's great color. Would you be able to give us an update on Model X reservations at this time or maybe perhaps some rough timing around when you might start to step up the marketing push on that one? Sure. Because we haven't pushed the model less at all. In fact, we literally only have one demonstration unit even. So I wouldn't want people to necessarily judge us against the progress with of Model X. So I'd rather than comment on it and have people infer something about that number. I'll just say like I'm pretty happy with how those reservations are going with basically 0 effort. I mean it's really the donut. And I actually think that we're likely to see buying interest for Model X that is at least 70% or thereabouts that of the Model S. And in certain countries, I think it will probably exceed the Model S in demand. Great. Thanks so much guys and congrats again. Thanks. Alex. Thanks. We have time for one more question. One more caller please. Our next question comes from Andrea James from Dougherty and Company. Your line is open. Hi, thanks for taking my question. You're suggesting positive net income in Q1 and just I guess what still needs to happen to get there, if anything? And then would anything throw that off for the rest of the year as well? Sure. Good question. So I mean unless there's some force majeure event like a giant earthquake or something or a big flood or typhooners, we feel really confident. I'd say to say that we will be profitable in the absence of a force majeure event this quarter. It's my aspiration and I think it is the aspiration of everyone at Tesla to be profitable in subsequent quarters as well. I'm cautiously optimistic about that, but I don't want to commit to it until I know more. We're committing to Q1 and I think cautiously optimistic about Q2 is a way to think about it. What sort of information would sort of make you more constructive on Q2? Like do you hope to learn as Q1 goes on? Well, I mean maybe I'm hedging too much. I just don't want to be overconfident really. I mean, I do think we'll be profitable in Q2. And in subsequent quarters too. But I guess rather than sort of an absolute commitment, I'd say I'm just really highly confident of that being the case. No, that makes sense. Thank you so much. You're welcome. Okay. Thank you, everyone, for calling. I want to thank you all for joining us this afternoon. We look forward to seeing you in the coming weeks either on a factory tour or on our travels to see you. Goodbye. All right. Thanks. Thank you. Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.