Good day, ladies and gentlemen, and welcome to the Company Update Conference Call. At this time, all participant lines are in the listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star, then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host, Mr. Jeff Evanson. Sir, you may begin.
Thank you, Trinita, and good morning, everyone. Welcome to the Tesla Motors Company Update Conference Call. I'm joined by Elon Musk, Tesla's Chairman, CEO, and Product Architect, and Deepak Ahuja, Tesla's Chief Financial Officer. Also on this call are members of our senior management team, including J.B. Straubel, Tesla's Chief Technical Officer, Jerome Guillen, Model S Program Director, Gilbert Passin, Vice President of Manufacturing, and calling in from China, we have George Blankenship, Vice President of Sales and Ownership Experience. A webcast of this call is available at the company's investor relations website at ir.teslamotors.com, and a replay will also be available about three hours from now. This 60-minute Conference Call will consist of comments by Elon, followed by updates from our attending senior managers.
We will conclude with time for your questions and answers, so please log in if you wish to ask a question, and Trinita will provide instructions after our comments. During the course of this call, we may discuss our business outlook and make other forward-looking statements. Such statements are only 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 the Risk Factors section and elsewhere in our most recent Form 10-Q filed with the SEC. Such forward-looking statements represent our views only as of today, and we disclaim any obligation to update these statements. Now, let me pass the call to Elon.
All right. Thanks, Jeff. I'd like to start off by apologizing for how the news of the executive departures came across because what was actually a slightly positive development, which is the transition of Bickel Engineering to Jerome and Eric, was somehow misconstrued as a slightly negative development. This was the news that we intended to convey at our quarterly earnings call in the sort of normal course of business, but unfortunately, it was somehow picked up by Bloomberg on Friday, and I think also created the impression that Tesla was trying to sort of dump news into the weekend or something like that, when in fact this was not a news release from Tesla at all. Again, I'd like to apologize. That's an error on my part. I'd like to also just make sure that the role of Rawlinson is sort of properly understood.
Peter is an outstanding engineer, but his responsibility was for Bickel Engineering. More specifically, he was Chief Engineer of the body and chassis, but he was not responsible for any of the powertrain, electronics, software, or other elements of the car. I think his role was misunderstood by some as being Chief Engineer of the whole vehicle, but that was not the case. After Peter resigned for personal reasons, and that is not a euphemism for something else, it actually is personal reasons, I looked at Nick Sampson's role, and after talking with the rest of the team about a week later, I asked basically for Nick's resignation because, although Nick is an excellent engineer, it wasn't a good fit within the organization for Nick.
As companies grow and mature, there are different people that are suited for a company at different stages of its existence, and the simple fact of the matter is that Jerome and Eric are better suited to this phase of Tesla's existence than Peter and Nick. It's no reflection on the individuals. It's just a question of the stage of the business. Jerome will provide an update on what he's been up to in a moment. I'll finish my comments by just affirming a few things that I think are perhaps maybe on people's minds. I'm highly confident of the following things: that we will meet or do better than the delivery date of the first Model S car, hopefully in July. I'm highly confident that we will deliver at least 20,000 cars next year, and I'm highly confident that we will have a gross margin of at least 25%.
The emphasis is on at least. I think we will do better than those numbers. I want to be very clear about that. I also think that the Model X, which is soon to be unveiled on February 9th, is going to be extremely well- received. With that, let me pass it on.
Okay. Now, moving to the business update section, J.B., you want to start us out, please?
Sure. Thanks, Jeff . This is J.B. Straubel. Good morning, everyone. Just to reiterate what I'm responsible for and what my team is responsible for, I manage all of the powertrain components for the Tesla vehicles, as well as all the electronic systems and software systems. That includes infotainment and vehicle software. My team today is about 345 engineers and about 190 manufacturing engineers, and this group is also responsible for powertrain operations and manufacturing. There is very tight communication between those groups. Overall, I'm confident and excited to report that we're on track for all the powertrain components of Model S. In fact, just in the last several weeks, we've had quite a few exciting demonstrations of key performance metrics for Model S.
In particular, we reached a very good goal of 4.4 seconds 0-60 mph time on the performance Model S, actually demonstrating that in a real car on a real road, which is quite impressive.
Right. It broke a dyno too.
We were also able to demonstrate in the real world in a car a top speed of greater than 130 miles per hour. We were really able to knock down and show that each of these specs is not just a model target, but performance in the real world. As well as the vehicle performance, we're also on track with powertrain manufacturing and manufacturing equipment. We recently had the delivery and began installation of our fully automated motor stator winding line, which is a very exciting development that allows us to build motors much more quickly at much higher quality in Fremont. As well as Model S, we also have continuing progress on Model X and now have two platforms performing and driving, validating that set of hardware and that software.
Going forward on Model S, some of the remaining work that we're focusing most on are basically completing reliability and performance testing, doing final vehicle validation of software systems, making sure that all of the user interfaces are completely robust and completely debugged ahead of first deliveries. We also have in place a solid plan with EPA and other certification agencies, which my team is handling and managing and are confident on the timing of that. Maybe I'll hand it over to Jerome for some further comments.
Thanks, J.B. This is Jerome. On my side, I've been working very closely with all the engineering teams for over a year. Going forward, it's basically business as usual. We continue doing what we've been doing, which means taking care first and of everything of timing, making sure we stay on schedule, making sure we take care of quality, that we make the best possible car, and it's an amazing vehicle so far already, making sure that we stick to the budget as well. As far as I'm concerned, there's not much change. We continue as we've been doing for the past year. More specifically, where are we in the program? I'd say the beta build is proceeding very much on track. You may have seen around the country, a lot of cars are popping up in the different stores that George will talk about in a few minutes.
That's some of the cars we're making, but we're also, of course, making a lot of test cars. Those test cars are undergoing all the tests we wanted to go through. In particular, we're going through our second winter test at the moment. The first one was with Alpha. Right now, we're going with the beta in Minnesota and other places, chasing the snow, basically. At the same time, we conducted the aerodynamic test in December, and the results are very positive, actually a little bit more positive than we were expecting. One big use of the vehicles is for J.B.'s team. We're doing all the optimization, the confirmation of the behavior, making sure everything works well on that side. Working very closely with this team as well. Of course, I usually get a lot of questions regarding crash testing, which is part of that phase as well.
We've done a lot of component-level testing, which has gone pretty much on track. We've done, in the past few weeks, body and white level testing as well, which also is proceeding as expected. We are getting ready for the vehicle which will be used for homologation. We have a solid plan ahead, and I think we're sticking pretty much to it.
Actually, if I may add something there, I've said before that our goal is to produce the safest car on the roads, and I think I feel quite confident that we will achieve that goal, that there will be no safer car that you can buy.
Thank you. I'll pass it on to Gilbert. He will explain how those cars are built.
Yeah. Good morning, everyone. My name is Gilbert. I'm VP of Manufacturing for the vehicle side. I just wanted to start by saying that we have been and continue to work very closely with the engineering team to bring the Model S to market on time. The overall timing for manufacturing is on plan, whether we're talking about machines, tooling, parts, and even the hiring of the people. As Jerome mentioned, we have built many beta vehicles so far on the actual production line using the actual production equipment throughout our plant in Fremont, whether it's stamping, plastics, the body department, the paint, as well as the final assembly. In terms of hiring, we are on plan. We now have about 261 people. This is going to about double by mid-year. Of course, we are on plan with our training, according to training our people to manufacture the Model S.
Most of the production equipment is actually installed. I think some of you have been in the October 1 event, and now, of course, we are further along. Most of the equipment is actually running in automation for the most part. The tooling is also on track. We have started to receive some of our stamping dies and actually commissioned some of our dies on our home line, press lines. More dies[dyes] are being shipped on a weekly basis. For example, next shipment will be about 32 dies from Japan to Fremont by January 27, 2012. In terms of parts, the parts are starting to flow to the facility. We are utilizing our material receiving systems to actually receive these parts and retrieve them. Soon after the beta vehicles, we are going to go into what we call the release candidate build towards the end of February, beginning of March.
I think overall manufacturing is on plan, and I'd like to pass that on to George, please.
Good morning, everyone. My name is George Blankenship, and I'm VP of Worldwide Sales and Ownership Experience. As most of you know, we began opening our new design stores last April. Our new design stores are achieving exactly what we had hoped for. We're seeing significant traffic on a day-in, day-out basis through the stores. We're expanding our brand awareness, and we're securing reservations as planned. To break it down a little bit into detail, we have six new design stores open in the U.S. Four actually opened last quarter. These six new design stores had just over 299,000 customers go through them during the month of December. This is incredible traffic through six stores of our size. We're very, very happy with that performance.
Overall, we had a very positive response to Model S as people come through them to see them in the stores, and our new design stores are working exactly the way we had hoped. We had over 8,000 Model S reservations at year-end, which added basically over 1,500 new Model S reservations in Q4. This is versus 1,150 in Q3. We're very happy with reservations performance. Another event that happened is we announced options and pricing several weeks ago. Our announcement of options and pricing was received very well. In fact, our strongest week for reservations in December was the week we announced pricing. The week after we announced pricing was the second strongest week for reservations in December. Within about two weeks after announcing pricing, we sold out Model S Signature in the United States completely.
We've had so many requests for Signature after we sold out that we're going to be starting a waitlist. Going forward, we plan to open 8 to ten more new design stores in 2012. New York, Miami, L.A., Boston, and Toronto are some of the cities we have planned for new design stores in 2012. In summary, we are very happy with the performance of our new design stores. Traffic has been terrific. Reservations are right in line with expectation. Pricing and options announcements went very well, and we've secured real estate to continue opening more new design stores in high-profile locations during 2012. Basically, that's it from my end of the business. Thank you very much, everyone. Elon and Jeff, back to you.
All right. Thanks, George. In summary, the Model S and the Model X are on track. I think the team is doing an awesome job executing on those vehicles. I think customers are going to be really blown away when they receive the cars. As was mentioned a moment ago, the cars are increasingly being outfitted to all of the stores. More and more customers are getting test drives. It's worth noting that many of the customers who have bought the car have bought it without ever actually sitting in the car, which is, I think, it's so much more helpful to have people actually sit in the car. I'm just very happy with where things are. Really, I couldn't be happier. It's a pretty awesome situation. With that, let's transition to questions.
We'll try to give as much time as possible for questions and address whatever people may have on their minds.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and 1 on your touch-tone telephone. If your question has been answered or if you wish to remove yourself from the queue, you may press the pound key. Our first question is from Steve Milunovich of Bank of America. Your question, please?
Yes. Great. Thank you so much for doing this this morning. You know, one of the big questions you hear, of course, is this is a very complex undertaking. Something is going to go wrong. I think last time I was out there, in terms of trying to identify things that might go wrong, there was more focus on suppliers than the things you feel you control in-house. I think the paint shop wasn't fully up and running at that point. To Gilbert, it sounded like that is now. I just wonder if you could kind of comment on where you might see any bottlenecks or what worries you today.
Sure. Let's have Gilbert comment on the paint shop, and then I'll talk about some of the other concerns. I don't have any sort of major concerns, but there's a low probability, there's a small chance that any one of our number of suppliers will have an issue, but there's nothing all that pressing. With that said, I'll try to give Gilbert an opportunity to answer the question about paint.
Yeah. Steve, thank you. About the paint shop, basically, I'm not sure when you were last in Fremont, but basically, the paint shop is now fully operational in automatic mode. We actually have been able to paint with the full automation, base coat, clear coat, many cars now with actually four different colors. We painted black, silver, white, as well as signature red, the first one anyway. I think for the paint shop, we're mainly on track.
Yeah. The quality is actually, for this early stage of having the paint shop operational, pretty good. I mean, we're going to keep iterating to get the paint as perfect as possible, of course, but it's actually surprisingly good for the stage of the game. With respect to the broader question of suppliers, one of the things we've tried to do is to have a broad skill set at Tesla. In a worst-case scenario, we can, for at least most of our suppliers, produce that component in-house with a bit of scrambling. I think it's very important to have that flexibility. There are a few things where we won't be able to do that. Airbags is an example, but that's where we've put most of our attention. To take that example, our airbag manufacturing is really doing a great job and has put their A-team on the situation.
I think I did identify airbags as a concern at one point, but I think that concern is largely put to bed at this stage. We're really trying to achieve five-star safety across the board. Any risk with respect to safety systems is really just a question of risk of being merely four-star, which I would consider to be unacceptable. We're not talking about the risk of something not working. We're just talking about the risk of it being a four-star instead of five in one subcategory. I find that undesirable, but that's just to bracket the risk. It's just a very big one.
Great. Thank you.
All right, thanks.
Thank you. Our next question is from Patrick Alterbold of Goldman Sachs. Your question, please.
Yeah. Hi. Good morning, and thanks a lot for doing the call. I basically have two questions regarding Peter and Nick. Number one is, you know, what kind of intellectual property protection do you have on employees so that when they depart, they can't use some of the more sensitive stuff that you have developed over the years? The second question is, how involved on a day-to-day basis were Peter and Nick in the Model X? Because clearly, that one is still in the engineering phase.
Sure. Being a Silicon Valley company, we really take great care with intellectual property. In addition to having quite a few patterns applied for on the vehicle engineering side, we also have quite rigorous trade secrets protections. It would be quite difficult for them to apply a trade secret that was developed at Tesla in another scenario. I'd also like to, at the risk of being repetitive, reiterate that Peter and Nick were really working on body and chassis and not powertrain-related or software or infotainment-related stuff. Where their skill really came into play was in optimizing the mass of the body and chassis and making it lighter than it would otherwise be. They actually arrived after we had designed the first prototype of the Model S. I think a lot of people aren't aware of that either.
We'd actually done the first prototype of the Model S before they arrived. They are quite skilled in mass optimization of body and chassis, and I'm sure they can apply that skill well at another company, but they can't take anything that's specific to our vehicle. The team that developed the Model X will actually be at the Model X event. It's a team of relatively young engineers led by Alan Clark. Anyone who's at the event is welcome to talk to the team, and they'd love to explain how all the elements of the Model X work. I'd invite people to just have that discussion with them firsthand at the Model X event.
Okay, great. Thank you.
Thank you. Our next question is from Ron Latsch of Deutsche Bank. Your question, please.
Good morning, everybody. It's two questions. One, just as a follow-up, Elon, to what you'd said earlier about suppliers. Are there any last-minute changes that you're making with respect to insourcing of components that you had planned to outsource at this point? Secondly, since we have J.B. on the phone, just relative to safety, I know you have something like 2,000 Roadsters out there with no issue, but I'm just curious whether there are any last-minute changes to the pack going on at this point, just relative to or as a result of some of the data that's coming out from NHTSA or some of the concerns that have happened just relative to the Volt. I know it's largely separate issues, but any changes going on there?
You know, I'm glad you asked that question because we really haven't been kind of crowing about the success of our safety to date on the Roadster, but it actually is pretty impressive when you consider that we've got over 2,000 cars in 30 countries in a wide range of circumstances, including several that have been in pretty crazy accidents, which were not the fault of the vehicle. In fact, the drivers have been pretty clear about that. There's been some spectacular ones with pictures online. It's being engaged in the internet. Anything that happens has a million pictures. I think my favorite is the one, I think it occurred in Denmark, where a Prius rear-ended a Roadster that was parked in front of a Touareg. It was quite a high-speed collision such that the Touareg was flipped into the air and landed on top of the Tesla.
The driver got out and walked away without any injuries. In fact, despite there being some pretty high-speed impacts, there's never been a serious injury. There's never been a serious injury, thank goodness, in a Roadster. There's never been a battery pack fire or anything like that. We did have a 12-volt battery. The little lead-acid battery melted a right front headlight. That's the extent of it. That's not a Tesla-made battery pack. We've really, it's gone very well on the battery safety side and really safety overall for the Roadster. I'm always reluctant. I don't want to tempt fate, so it's always like a little scary to say that everything's gone so well, but it has.
With respect to the battery pack in the Model S, there will be some continued refinements probably for the next two to three months because we're always looking to make it as good as possible. We're testing every possible kind of use case, including things that are really extraordinarily unlikely. We're trying to protect against even kind of the one in a million type of situations. The battery pack in the base has like a quarter inch of plating. Just so as one example, it's practically to protect you from an IED, actually, IED. Sorry. That's it.
No, not asked if you thought there could be any changes related to the Volt.
I haven't seen any clear indications of changes. J.B., are you aware of it?
Not in our case directly. The Volt had a fairly specific problem that I think GM has described in some detail. It's worth noting also that it's not just the Roadster that's had a successful track record, but also the battery packs that we've built with Daimler for the electric excavator.
Excellent point.
Mercedes A-Class. In fact, we have more battery packs in both of those two platforms together than we even have Roadster. The total number of batteries deployed in the field is really greater than 2X what Roadster is. Those companies, of course, have very stringent safety standards, and they hold the bar extremely high, as do we. That is, I think, another very good field validation of the technology. Both the Roadster, the Smart, and the Mercedes A-Class have all passed all of the federal crash regulations, or not the Mercedes A-Class, but European in that case, with success. They did not exhibit any of the specific challenges that the Volt battery pack had. All that said, we're certainly double-checking all of our engineering designs for Model S, and we're still refining testing and validation. We'll continue to fix any problems that do come up.
That's a very good point. There's also the Toyota RAV4, which is coming out this year, where we've undergone extensive testing in partnership with Toyota, and that's also gone quite well.
Is there anything, any new developments in insourcing of components?
There is one sort of notable development, which is the insourcing of high-pressure die casting. This is a case where we're making sure that we're covered from the supplier while bringing the process in-house. That one may seem a little counterintuitive, but the economics really make it worthwhile. That's going pretty well. Like I said, we're making sure we're covered in terms of parts coming from the supplier as well as bringing the die casting machine up and running at Tesla. We won't transition to in-house produced parts until we're sure that we have good parts coming off the machine.
Thank you.
All right.
Thank you. Our next question is from Amir Razwedowski of Barclays Capital. Your question, please.
Thank you very much for taking the question, folks. Elon, just wanted to talk a bit more on the safety issue. It doesn't seem like any of the broader concerns with other vehicles in the market has really deterred the traction of reservations for you folks based on the numbers you provided today. That being said, what type of steps are you planning on providing with at least giving the public a little bit more insight in terms of your own internal safety testing? Is that something that we should expect to see more information on as we progress towards the Model S launch?
Yeah. You know, we did quite a bit of that with Roadster. There are some older blog pieces where we talked in detail about all the steps we've taken to ensure safety. It's really, I mean, it's like this famous phrase from Andy Grove, "Only the paranoid survive." We believe in being extremely paranoid about these things. For the battery pack, at the cell level, in addition to the internal fuse of the cell, each cell is double fused externally. Basically, each cell is triple fused. We have additional safety brakes at the module level and at the pack level. The pack is liquid cooled, but our testing assumes that the liquid cool fails and the pack must still be safe. A thermal runaway of one cell cannot propagate to another, even in the unlikely event of a complete failure of the liquid cooling system.
J.B., would you like to, anything you'd like to add to that?
Yeah, I think it's, you know, we probably do more battery abuse testing than any other company that I'm aware of. We spend an enormous amount of effort on this, and it's something we have been, as Elon said, very paranoid about from the beginning of Roadster. We didn't have a lot of track record or things to go by in the beginning and had to understand this from the fundamentals. I think we've built that understanding up through all the different battery packs we've developed. The Model S is an iteration of a pack that has an architecture that's been proven safe in quite a few other applications. We have a sizable team doing this. I think it's the best in the world, and the Model S is the latest and greatest of those battery packs we've done.
Right. I think this is also some degree of indication of our small cell strategy. Rather than have a huge number of large cells, we have a large number of small cells. Those act like firebreaks in the forest. If something were to go wrong with one cell, there's a relatively small amount of energy per cell, and that doesn't then propagate to another cell. In other words, the energy release is much less than if your cells are very large and it's much, you know, where it's very difficult to contain the energy. It is more complex to deal with a larger number of cells, and you need more sophisticated software and mechanical and electronic engineering. I think it's an inherently safer approach to take.
Great. Thanks very much for the incremental information.
Thank you. Our next question is from Carter Driscoll of Capstone Investments. Your question, please.
Thanks. Good morning, Jerome. Just to put the issue to rest, gentlemen, could you elaborate a little bit more about the departures? Was this at all related to an internal disagreement over the direction of the Model X? Did they leave for a competitor? Could you provide a little additional color so the issue doesn't raise its ugly head again?
No. Neither one have left for a competitor. There's no competitive concern there, nor is there, I think, any significant disagreement or even perhaps a significant disagreement with respect to the Model S or Model X. We're really just entering kind of a new phase of Tesla's existence where we're in the run-up to high production. The skill set provided by Jerome, who comes from Daimler, and Eric from Volkswagen, is really just sort of better suited for this phase of the company's existence.
It was more of the role no longer being as important as it once was, is what you're qualifying as?
Essentially, yeah. I mean, the same person that's sort of right for a team that's 20 is not necessarily right for a team that's 200. We're just going through a different stage of maturity, essentially. That's why I said in the beginning, I made a mistake in not communicating immediately when Peter departed and then a week later when deciding that Nick wasn't quite right for the organization. Those two things got conflated. That's sort of a communications error on my part, but I will endeavor not to make it in the future.
All right. Thank you for that. The next question, just on the, if you could just remind us the event upcoming for the Model X and how that is going to unfold and what that will entail.
Sure. It's on the evening of February 9th at the Tesla Design Studio, which is in Los Angeles, or technically in Hawthorne, but like 15 minutes from downtown LA. We'll be unveiling what is kind of an SUV. I think it's pretty revolutionary for the SUV segment. I don't want to give anything away for the event itself, but I think people are really, I think it's really great. I mean, I'm biased, obviously, but I think I'm also a pretty harsh judge of these things.
Will there be a test drive involved or no?
This is the first prototype. It's at a much more advanced stage than the first Model S prototype because it's derived from the Model S platform, which is much, much more mature. We will do test rides. There's actually not enough time to do test drives, even if that made sense, because with one vehicle, you can't get enough rides through in the course of the evening. People will certainly have an opportunity to ride in the car and get a real feel for what it's like.
Appreciate all the color. Thank you.
You're welcome.
Thank you. Our next question is from Michael Horwitz of Robert W. Baird. Your question, please.
Good morning. Thanks for doing the call. Really, my question is kind of centered around when this kind of news comes out and you're trying to revolutionize the auto industry, my concern really comes from how you manage news and PR so that customers are still motivated to take the leap of faith and buy an electric vehicle. Given the fact that there have been quite a few comments from some in the investment community around adoption of EVs in general, separate from Tesla, how are you going to focus on this in the next coming weeks and months so that people don't get distracted with news like this and are educated properly in what you're trying to do? Thanks.
Sure. The way things are looking, we really don't have too much of a demand problem. I mean, we're continuing to see sales accelerate. Even over the weekend, I was like, you know, the news of Friday affect reservations over the weekend, and it really didn't. It had no impact. I think we're really doing well on demand generation. George and his team are doing a fantastic job. Most of my focus is really on getting the engineering and design as perfect as possible and then bringing that to market on time for the cost that we promised. That really consumes the bulk of my attention. Is that your question?
Okay. I guess we're finished with you, Michael. Thank you. Operator, next question, please.
Thank you. Our next question is from Andrea James of Dougherty and Company. Your question, please.
Hi. Good morning. I have two questions. The first is for Gilbert . When do you think is as soon as you can produce one Model S from start to finish with the manufacturing setup you have?
To be honest with you, it's actually already happened. We have already produced a, I'm going to say, I'm not going to say 100%, but mostly a car from start to finish. Technically, the only one that you would say the parts that were not ours were the stamping part because they were stamping some in Japan and some in Detroit. The rest of it, you know, the paint, some of the body assembly, and the actual vehicle assembly has been done in Fremont with our equipment, with our people, mostly in an automated fashion. I mean, it's not 100%, but we're very, very much closer to that.
That's helpful. Thank you. The second question, a little bit lighter since you guys have answered some good questions already. Elon, when information was really scant on Friday, there was a lot of investor attention paid to your personal Twitter feed and just the joke you had made about renaming the executive conference room. It would just be great if you could clarify that you were indeed making a joke there.
Yes, I was indeed making a joke. I think it's perhaps helpful to have a healthy sense of irony. I can't say I have the best sense of humor, and some people may not find my jokes very funny. I apologize for that. It is a bit of a jokey Twitter feed.
Thank you. Thank you.
Thank you. Our next question is from Elaine Kueh of Jefferies. Your question, please.
Hi. Thanks so much. I just wanted to follow up real quick on some of the earlier comments about the departures. It sounded as if there was a planned transition, at least in the case of Peter. Could you tell us how long they had been with the company and how much notice you did have? Secondly, where are you at in satisfying the external crash testing requirements, and how does the remaining timeline look there?
Sure. Peter and Nick both arrived, I guess, about, I think, three years ago, roughly.
2009.
Yeah.
Peter and Nick , I believe.
Yeah. It's roughly like two, two and a half, two and a half years, or thereabouts.
Yeah.
It's just after we'd done the initial Model S prototype. They were very helpful in optimizing the mass of the body and chassis. They weren't responsible for the core design, but they did help optimize the design a fair bit. I think in terms of notice, I guess I have some sense that there would need to be a transition. In the case of Peter, it happened a little faster than I anticipated, but not much faster. In the case of Nick, as I mentioned, that was a case where we decided that there wasn't quite the right fit between Nick and Tesla at this stage of the game.
Regarding the external crash testing, what's remaining in terms of the timeline there with NHTSA and the various governmental bodies?
That's going pretty well. I mean, in terms of having a car that can ship and pass the crash test, we're already at that stage. It's really just a question of achieving the full five-star rating. At the risk of getting into the weeds a little bit, the trickiest thing to achieve five-star crash rating on is the fifth percentile female unbelted occupant passenger. That's quite a tricky thing. The overall problem is quite tricky because you've got to deal with people of all sizes and shapes, from a fifth percentile female to 90% percentile male, belted or unbelted, getting impacted from side, rear, front, offset, deformable barrier, non-deformable barrier, pole intrusion. It's quite an array of tests. There are a few that are trickier than others. It's really just a question of can we get to five-star in all categories.
We're already five-star in most categories, and we would like to be a five-star in all categories.
Does that answer your question, Julie?
Yes, thank you. Thank you very much.
Thank you. Again, ladies and gentlemen, if there are any additional questions, please press star then one on your touch-tone telephone. Our next question is from Steve Milunovich of Bank of America. Your question, please.
Thanks. I was just wondering, I think you said George is in China, and assuming he's not on vacation, are you looking at opening a store in China? George, what's your general sense of the prospects for EVs in China?
I am in China. I'm doing some very, very preliminary front-end work to determine if the market is right for us, when it's right for us. I'm confident that it will be. It's a matter of timing and a matter of entering the market the correct way. We have to make sure that we position ourselves correctly within the other segments that are here, and we enter the proper way. I'm at the very early stages of defining that. As far as being received here, all you have to do is land at Beijing Airport and look out the window, and you will understand how important EVs are to China's future. You can slice the air with a knife. I think the government here is going to do what they can to promote it, and I'm hoping that we will be an active player in that.
Nothing to report at this point, very early on. I think China needs what we're doing just as much as we would like to help them satisfy the need.
Great. Thanks.
Thank you. Our next question is from Brian Russell of the Russell Group. Your question, please.
Good morning. Thanks for taking the call. Could you give us some sense of when the interior will be finished and in the showroom so the prospective buyers can see what all is going to be available there?
Sure. We do have a whole bunch of beta cars that do have interiors of various types. The interiors are pretty good, although the production interiors are actually better for the finish than what people have seen to date. What people have seen to date has clearly not prevented them from putting down a reservation on the Model S. I think people may be comforted by the fact that our production interiors will actually be even better. As the betas get more mature and we get into the release candidate builds in the coming months, that's when people will see a steady improvement in the interior, and we'll see the full array of options. It is really only a few months away.
When will the customers, just walk-in traffic, be able to actually test drive the S?
That will be when we're in the release candidate phase. We're talking about maybe three months or so.
Okay. March, April?
Yeah, approximately. We want to make sure that the cars are, I mean, you know, it's one thing to do beta test software, but you don't want to beta test cars. We would prefer to be fairly conservative in that regard and wait until the cars are 100% homologated. It's probably about three months, yeah, something like that.
Okay. Is there anything new on the Daimler LOI or the other deal with Toyota?
I'm quite optimistic about both of those, but I can't comment on anything without checking with our partners first.
Okay, thank you.
Thank you. Our next question is from Amir Razwadowski of Barclays. Your question, please.
Thanks very much for taking the follow-up. Elon, I did want to touch base quickly on that comment that you had made that you feel fairly confident about hitting your gross margin target. Certainly, as we now approach sort of the commercial launch of the Model S, we get sort of closer to that target timeline. What gives you that increased confidence? Has there been developments or anything along those lines that give you comfort that you're going to be able to achieve and surpass that target? Thanks.
Sure. Just to be precise, I was referring to the 25% in next year, so 2013. At this point, I think we have quite a detailed and quite a precise understanding of the cost of the Model S. That's what gives me the confidence. There's just not a lot of uncertainty remaining in the cost of the components and the cost of the operation of the factory. That uncertainty obviously reduces with each passing month. That's why at this point, I feel highly confident that we will achieve it at the 25% target and perhaps a little better in 2013.
Any chance we could get a little bit of color on what perhaps a little better is?
You know, it's got to be a little coy here. I think, you know, we'll see. It's going to be some number better than 25. What I think will happen is that number will improve over the course of 2013. A lot of people are really questioning whether we could achieve 25. At this point, I'd like to say I'm virtually certain that we will.
All right, thank you very much for the additional information.
All right.
Okay, I think we have time for one more question. If there's one more question, operator, let's have it, please.
Thank you, sir. Our final question is from Elaine Kueh of Jefferies. Your question, please.
Just one clarification. Apart from achieving the five-star safety ratings in all categories, is the car now legally approved for driving on public roads? If not, when would it be?
The car is legally approved from the standpoint of as a manufacturer. We drive the cars quite a bit on the roads as it is. In order for customers to drive it, we have to have the EPA certification. The EPA has to do a range of confirmations, and we have to internally have all the documentation necessary for self-certification of the crash test and that kind of thing. I think that's the key milestone there in terms of when everything is done, and it's the delivery of the first car to the first customer. That's the date that we're seeing is no later than July.
Thank you, Elaine. I think we're coming up on the hour. We have no more questions in the queue. We thank you all for your time. I will open up to Elon or anyone for any concluding remarks.
I think we've said it there, but I think there were some really good questions. Hopefully, we've addressed all people's concerns. If there are no more questions, it sounds like we have. Thanks, everyone, for tuning in.
Thank you all for joining us this morning. We look forward to speaking with you all again on February 15th when we will release our Fourth Quarter 2011 Earnings. Thank you.
Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.