Tesla - Earnings Call - Q4 2011

Transcript

Speaker 6

Good day, ladies and gentlemen, and welcome to the Tesla, Inc. fourth quarter 2011 financial results Q&A conference call. During today's call, all lines will be in a listen-only mode. Later, we will conduct a question and answer session, and instructions on how to participate will be given at that time. If anyone requires operator assistance during the call, please press star then zero on your touch-tone telephone. As a reminder, today's conference is being recorded. I would like to turn the program over to Jeff Evanson.

Speaker 0

Thank you, Matthew, and good afternoon, everyone. Welcome to Tesla, Inc.'s fourth quarter and full year 2011 financial results Q&A session. I'm joined today by Elon Musk, Tesla's Chairman, CEO, and Chief Product Architect, and Deepak Ahuja, Tesla's Chief Financial Officer. We announce our financial results for the fourth quarter and full year shortly after 1:00 P.M. Pacific time today. The shareholder letter, financial results, and webcast of this Q&A are all available at the company's investor relations website at ir.teslamotors.com. Like last quarter, this call will consist of some brief remarks by Elon, followed by time for questions and answers. We will conduct the Q&A session live, so if you have not already done so, please log in now if you wish to ask a question. During the course of this call, we may discuss our business outlook and make 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 our most recent Form 10-Q filed with the SEC. Such forward-looking statements represent our views only as of today and should not be relied upon after today. We also disclaim any obligation to update these forward-looking statements. Now, let me pass the call to Elon.

Speaker 1

All right. I just want to make a few comments. I'm incredibly excited by the sales and the interest in the Model X. When you introduce the product that is really groundbreaking and innovative, you don't necessarily know how customers are going to react to that. They're reacting incredibly well. From a customer standpoint, the Model X was clearly a home run, and they've spoken with their dollars by putting down reservations on the Model X. In fact, if anyone on the call is interested in a Model X, I recommend putting down a deposit soon because this is by far the best-selling product in Tesla history and by a significant margin. It's just great. That's the main thing I wanted to mention. The other thing being that we've begun work on our first full Mercedes powertrain. Previously, we've done the battery packs and the chargers.

Now we're doing an entire powertrain for Mercedes. As is Tesla policy, we don't comment on the details of powertrain agreements. We leave that to our strategic partner. We'll leave that up to Daimler as to when they want to speak in more detail about that. With those introductory comments, let's jump into questions.

Speaker 6

Thank you. Ladies and gentlemen, if you would like to queue up to ask a question, please press star then one on your touch-tone keypad. Our first question comes from Amir Rozwadowski at Barclays. Your line is open.

Speaker 5

Thank you very much, gentlemen. Elon, on the discussion of the Daimler contract, I realize that you folks don't provide too much color in terms of the partnership. In the past, you have highlighted that you have a number of these discussions underway. Are these the folks that you had suggested could ultimately end up being a pretty significantly sized opportunity, or should we assume that that is with someone else at the moment?

Speaker 1

That's a tricky question. I'll have to break that question apart a little bit. I do expect that this deal will be significant, and probably more significant than the sum of all deals we've done with Daimler to date. That's about all I can say on that front. There are other sales of significance in discussion. Yes, there are.

Speaker 5

Okay. That's very helpful. If I may, you folks had provided some color in terms of where you expect your revenues to be in, say, in 2012. Certainly, as I think you've fairly been consistent that it's going to be fairly back half weighted to the launch of the Model S. I was wondering if you could give us some color in terms of the mix of the Model S reservations that you have so far. In terms of running the numbers, it does seem as though you're going to be delivering on the high-end versions first. I'd love to hear sort of mix potential, what you guys are factoring in for ASPs for your deliveries for the year, or any color along those lines.

Speaker 1

Sure. I do expect that it is going to be weighted towards the higher-end versions of the Model S, and necessarily so for the Signature Series, which basically comes with almost all the options. That is the first 1,000 vehicles. Even beyond that, we then deliver regular series with the 300-mile range, and we drop to the 230-mile range. The 160-mile range version does not get delivered—we are not starting deliveries on those until early next year. That is necessarily going to shift the weighting towards the higher-end version of the Model S. I think we will have a much better sense, and really quite a precise sense for that in the coming months as we release the configurator and see exactly what options people pick.

Speaker 5

Okay. That's very helpful. Lastly, if I may, you know there's been a lot of questions around concerns on cash positioning, United States Department of Energy loans among the industry at the moment. It seems from your prepared comments you feel comfortable with your current cash position and liquidity. I was wondering if you could give us a little bit of color in terms of how you view that progressing through the end of the year and into the beginning of next. I mean, do you feel that with the trajectory of the Model S at this point, you feel comfortable in terms of how that's going to sort of pan out for your cash burn situation currently?

Speaker 1

I feel confident in saying that Tesla does not need to ever raise another financing round in terms of need. It's possible that we may choose, that we may want to do so. Importantly, we do not need to do so, at least by our projections. We're in a really strong cash position. Our relationship with the United States Department of Energy is very good. I feel pretty secure on those fronts.

Speaker 5

Great. Thank you very much for the incremental color.

Speaker 1

All right.

Speaker 6

Hey, thank you. Our next question in queue comes from Jesse Pichelle with Jefferies. Your line is open.

Speaker 8

Yes. Good evening, Jesse Pichelle from Jefferies. Congratulations on the launch last week. Thank you for hosting us. My question is, from a branding and strategic perspective, how should we think about the Mercedes brand cannibalizing Tesla products, and what keeps Tesla differentiated from your customers in this particular supply arrangement?

Speaker 1

Absolutely. You may have heard me say on a few occasions that the goal of Tesla is to serve as a catalyst for electric vehicles. We want to do everything we can to advance the course of electric cars, whether that's cars we make ourselves or cars that we help others make. At the end of the day, if our vehicle engineering isn't up to par, but our powertrain is, then obviously that would let us become more of a powertrain company. I think that we do good vehicle engineering and good powertrain engineering, and that our products will find a place in the market. That's as demonstrated by the customer interest, really. It's also important to bear in mind, the new car market is something like 80 million vehicles a year. The Model S at full production sets 20,000 vehicles a year.

It's a very tiny portion of the market. We're certainly not taking very much business away from partners, and nor are they taking much business away from us. We're still at a small portion of the market. When comparing vehicles, I think it's important to think about comparing, say, premium sedans or premium SUVs rather than thinking of, say, the Model S or Model X as competing against the set of all-electric vehicles, which range from golf cart to Nissan Leaf to whatever the case may be. That's not really what people think of. When somebody is looking at buying a Model S, they're considering that against something like an Audi A6 or A8 or against a Porsche Panamera or a BMW 5 Series, 7 Series. That really tends to be the base of comparison.

Speaker 6

Thank you. Thank you very much.

Speaker 1

That's okay.

Speaker 6

Thank you. Our next question in queue is from Peter Christiansen with Bank of America Merrill Lynch. Your line is open.

Speaker 3

Thank you. This is Peter, Emperor Steve Milanovich. Elon, I was wondering if you can just give us some color on the range, the guidance range. Is that more of a function of Model S, I'm sorry, Model S output or the timing of development Services revenue? How does that tie into your gross margin outlook?

Speaker 1

Yeah, I'll leave it for Deepak to answer most of that. I mean, certainly, the bulk of the 2012 revenue is Model S related. Deepak?

Speaker 4

Yeah. I mean, there are three elements to this, Steve. Obviously, the biggest one is our projection of 5,000 Model S, which drives it. We have our own roads to sales that we would have in Europe and in Asia. Beyond that, we have the powertrain components business with Toyota, and then some bit of development services revenue with OEMs.

Speaker 3

Great, you know, I'm sorry.

Speaker 4

No.

Speaker 3

I was wondering if you can characterize the revenue opportunity, you know, providing a full powertrain solution versus some of your previous programs, notwithstanding, you know, a different battery size.

Speaker 4

Sorry, are you referring to Daimler?

Speaker 3

Yes.

Speaker 4

We're talking with the full, you know, clearly there is more revenue, but in our mind, it's the ability to provide to Daimler a much higher-performing vehicle, which includes a full integration of our system. It allows us to provide a much more cost-effective and higher-performing EV to Daimler rather than just our battery pack, which gets integrated into their system.

Speaker 1

Yeah, exactly. By providing full powertrains, it's a really seamless integration. It's a better customer experience. Everything's really optimized to work well with the other elements. We demonstrated that for Daimler. They're pretty impressed, and that's what led them to want to move forward.

Speaker 3

Thank you. Just one last one. Elon, you just talked about the difference between needing additional financing or wanting one. One would assume that could imply accelerating the Gen 3 program. If that were the case, what would be your thought process? Would it be driven more by the momentum and the confidence that you're experiencing right now, or possibly a response to some other competitive threats that you see from other OEMs?

Speaker 1

I'm not too worried about competitive threats because the market is so big that what we're really focused on is not what, say, any other company is doing, but rather, are we making the best possible product? Is there anything we can do to make a product that is going to amaze and delight customers more? That's, I think, the right thing to focus on. We are going to do it. The next significant vehicle, the next major vehicle announcement after the Model X will be a Gen 3. I made these comments to some in the media, but it's perhaps worth reaffirming that. Previously, we were going to do a next-generation roadster after the Model X. I've sort of gained enough confidence that the technology will be scalable to higher volume, maybe a bit sooner.

We'll be able to go to a third-generation vehicle, which would be a mass market vehicle with the price in the kind of $30,000 range. If we were to accelerate that, you know there would be an argument for doing a modest capital raise.

Speaker 3

That's great color. Thank you so much.

Speaker 1

You're welcome.

Speaker 6

Thank you. Our next question in queue is from Dan Levy with Deutsche Bank. Your line is open.

Speaker 9

Good afternoon. Wondering if you could take us a little bit through the near-term certification process or qualification process for the Model S. Just curious, considering that you still have some dies arriving in the next couple of months, what are the key bottlenecks that could come up in qualification? What level of vehicles need to be used to qualify for driving on U.S. roads in terms of whether it's a beta or a release candidate vehicle or something with full dies, production intent parts from the factory?

Speaker 1

Yeah. It's fascinating learning that before the dies are shipped from Fuji, who's our primary die supplier, they actually do stamp a number of body parts. We actually do get production body parts before the dies ship and are making cars with those production body parts now. That way, when we receive the dies, we put them into our stamping presses, and all we're doing is just verifying that there's no meaningful difference between the stamping press at Fuji and our stamping press. The dies themselves are already sorted out. As far as risks for production timing, I can provide a little bit of color there. Previously, I'd said we expect to be five-star on average, but maybe we'll be four-star in some categories. It's looking increasingly like we will be five-star in all categories. That is looking increasingly optimistic.

There's a particular challenge with the fifth percentile female in the front passenger seats. I just had a meeting this morning, which looks like we'll be able to achieve five-star in that category, which is great news. We're going to be doing some pretty innovative things, working with Dakkota, the seatback supplier. That's good.

Speaker 4

I think our homologation timeline is on track in terms of the certification that Dan was asking. Since most of that certification is self-certification and it's on production intent car parts, as you mentioned, the dies in Fuji are producing the parts which allow us to make the bodies and get that certification done.

Speaker 1

Five-star. Yeah. Jeff was just suggesting that I should reaffirm that it's looking like we will be five-star in all categories. I don't want to say it for sure, but it's looking like that's quite likely. Just in case there's any ambiguity. Sorry.

Speaker 4

Oh, I think we've answered Dan's question.

Speaker 1

Okay, yeah, thanks. It's very clear.

Speaker 9

My second question has to do with your R&D factory, if you will, with work probably winding down on the Model S coming up and ramping up on the Model X. Will you have additional capacity in R&D? I guess my real question is, would you have the capacity with your current R&D staff to begin work on a Gen 3 vehicle, let's say, you know, by early 2013 after the Model S is fully launched?

Speaker 1

Yes, I think so. That's the plan of action, in fact.

Speaker 9

Okay. All right. Great. Thank you. Thank you very much.

Speaker 6

Thank you. Our next question in queue is from Patrick Archambault with Goldman Sachs. Your line is open.

Speaker 8

Hi, good afternoon.

Speaker 1

Hi.

Speaker 8

I guess, you know, maybe my first question would be, as we think about it, I think reading through here, it sounds like, you know, if you look at the R&D and CapEx plan for 2012, it's largely still Model S-focused, unless I'm mistaken, right? I think the wording is that on the R&D front, you know, by the end, there is some X spending that, you know, picks up. How do we think about, you know, what that might look like, you know, both on a CapEx basis, you know, next year for, you know, where I'm presuming the R&D and the CapEx for that program is going to be really, you know, at its peak? How should we think about that?

Maybe whatever you're comfortable talking about, maybe a year-on-year comparison or, you know, a comparison of how it is vis-à-vis what you spent on the S, you know, presumably, obviously, it's a lot less because it's on the same platform. Just helping to mention that.

Speaker 4

Just to clarify, firstly, the R&D spending on the Model S should reduce in the second half, as you have said in the letter, not just towards the end of 2012. Once we go into the production of the Model S, a lot of our manufacturing expenses, pre-production, which are presently in R&D, will move into cost of goods sold. There should be a substantial reduction, and we will be done with a lot of the spending we are presently incurring on building the prototypes and testing them. Yes, there will be some ongoing R&D on the Model S as we look to bring out a European version or fine-tune some other things, but it'll be at a lower level. We'll see a pickup in the Model X spending at that point. The same goes for CapEx. A lot of our CapEx is in the first half.

It's heavily weighted as we pay our suppliers both for tooling and equipment, the final payments once we sign off on the tooling and the equipment.

Speaker 8

If I think about, you know, just how those things trend into 2013, one would expect, you know, that perhaps you get a bigger spike in R&D than you would maybe in CapEx because you can leverage some of the equipment. You know, how do we think about that?

Speaker 4

I think the leverage is there in both R&D and CapEx. I can't tell you specifically where the bigger leverage is. Our spending on the Model X is going to be very substantially lower overall than the Model S because we're leveraging every element of the manufacturing factory, the platform, the powertrain. There's quite a bit of commonization of parts in areas where you can't see the visible differences between the Model S and the Model X.

Speaker 1

You're probably right, but maybe they're saving in both, but relatively speaking, it's probably more savings in CapEx than there are in R&D.

Speaker 8

Okay. Taking a step back in terms of more of a product question, how are you thinking about sort of higher mileage vehicles in your product cadence? I think at the Detroit Auto Show, you had put up a slide suggesting it would not be inconceivable to get your cost per kilowatt-hour down to $200, if I'm remembering correctly. You've mentioned the next gen, and perhaps after that, maybe a new roadster, but might there be an interim demand for a Model S or a Model X with even higher mileage capabilities, just given the availability of cheaper batteries?

Speaker 1

Yeah. You know, what's this like the phrase in Texas? I'll call them like, you know, you never know what the river cloud's going to be.

Speaker 8

Okay. I know you guys have reiterated this before, but just to remind myself, what kind of intellectual property protections do you have in place when you do these programs with other OEMs? What kind of restrictions are there to prevent them from leveraging what they learn from working with you and doing something independently?

Speaker 4

In our relationship with Toyota and Daimler, where we have these programs, have been such that they're very respectful of our IP. Certainly, we don't see any issues where this relationship is based on their desire to do things the wrong way. I mean, we feel very comfortable. As we grow that business, we will work at, if we get to very high volumes, we'll look at licensing and other opportunities to manage that growth. At this time, we're not concerned about our IP in these relationships.

Speaker 1

Yeah. I must say, it's been really great working with Toyota and Daimler. I mean, they're really stand-up companies. There's been no indication at all of them wanting to subscribe with IP. We've got pretty clear agreements delineating what IP launched which company, and we really had no disputes at all. I mean, there's quite a bit of mutual trust there. We do, of course, have patents, and we've got quite a few patents. It's never really even been a bone of contention of any significance. We've actually said that we're open to licensing IP as well. It's not as though we necessarily have to be the ones manufacturing the powertrain. If our partners want to do that, then we can license elements of the IP. At a certain volume, you know, if they're doing 100,000 units or something, that could make a lot of sense.

You know, it's sort of more of a Qualcomm model in that sense. I should say, you know, I was also being a little cheeky there with the river card. I think the real river card is going to be the Supercharger when people really see how awesome that is. It's a free killer. We'll unveil that, you know, with all the elements of the Supercharger later this year.

Speaker 8

That's just for the stage three charger, correct?

Speaker 1

It's beyond stage three.

Speaker 8

All right. Very good. Congratulations on all the benchmarks met so far, and thanks for taking my question.

Speaker 1

You're welcome.

Speaker 6

Thank you. The next question in queue comes from Himanshu Patel with J.P. Morgan. Your line is open.

Speaker 5

Hi. Good afternoon, guys.

Speaker 4

Hey.

Speaker 5

A few questions. I wanted to clarify on the R&D. You did $208 million in full year 2011. You're sort of indicating about a $70 million annualized reduction from the sort of falloff on Model S and Fremont-related costs. That kind of gets you to a run rate of $138 million. You're indicating some uptick from there related to the Model X in the second half. Could you just simplify all of this and give us the 2012 R&D number that you're thinking? Also, any sort of dimensioning you can do on just a run rate of that number perspectively, either in absolute terms or as a % of sales?

Speaker 4

I think you will see some increase in Q1 and Q2 because we're just adding a lot more people in our manufacturing facility. As we indicated in our letter, there's about $15 to $20 million of manufacturing-related expense that comes out in the second half once it moves to car. When you add in a bit of Model X, I think we are specifically not giving a guidance, but giving you sufficient granularity and trend here that I'm sure you can work it out reasonably well in your model.

Speaker 5

Deepak, I just wanted to be clear. It sounds like there's two issues going on with the R&D costs. There's a reduction happening from just an accounting reallocation from R&D to COGS, and then there's another, sounds like another reduction happening from just the kind of, you know, turning off, if you will, of elevated costs related to the Model S launch and the Fremont factory. My understanding was the $15 to $20 million per quarter reduction, which was kind of the genesis of my $70 million annualized comment. Is that related to the latter or the former?

Speaker 4

The former.

Speaker 5

I see. How much of a, so that's just those costs don't actually go away entirely. They just kind of get reallocated from R&D into cost of goods sold?

Speaker 4

That's right.

Speaker 5

Okay. Is there a reduction, sort of an overall, you know, cost reduction in the corporation regardless of where it gets pinned on the P&L, just related to, you know, the fact that the Model S development is behind you? You indicated that the X is going to be, you know, considerably lower cost. Presumably, a lot of the, you know, costs related to getting Fremont up may have been hitting the R&D line as well. What is the sort of reduction associated with that regardless of where it's sort of classified on the P&L?

Speaker 4

Yeah, there is a reduction related to that. You're absolutely right. That'll be partially offset by some spending in X that we talked about. There's some calendarization there, which is, you know, we have a sense of it, but it depends on how our spending goes by quarter. We aren't giving any specific numbers. I think overall, we'll be in the $200 million or so range for R&D. When you run the models, you'll come somewhere there.

Speaker 5

200 for this year?

Speaker 4

Yeah.

Speaker 5

Okay. The next question is just the, you know, the Roadster. What is the long-term plan for that? Will that be reincarnated at some stage, or is this just kind of being, you know, going into sunset forever?

Speaker 1

With the Roadster, or the first version of the Roadster, the intent was really to create a real collector's item. It's obviously the first viable electric car of one era. I think it's likely to be one of the first true collector's cars of the 21st century. We want it to be that. That's why we capped the volume at 2,500. There will be at some point a new generation Roadster, but from my earlier comments, that's going to come after the third-generation vehicle. You know that pushes it out probably about four years or so.

Speaker 5

Elon, just kind of going back to one of the earlier questions, there's sort of this theoretical curve, if you will, on prospective cost per kilowatt-hour reduction that I'm sure you've got some historic data to support. There's the stuff you're working on right now that may just be in validation. There's just a matter of time before you actually get there. Can you mention for us how much of that kind of $200 per kilowatt-hour number is in the bag from the engineering efforts that you can see and know that the organization has pretty good visibility on right now versus something that you haven't really figured out exactly how you're doing it, but you know over time that will happen?

Speaker 1

I'm not sure we've actually ever said anything about it publicly about a $200 per kilowatt-hour. I wouldn't want to be able to assume that we have. I do think that cost per kilowatt-hour at the cell level will decline below that, you know, below $200 in the not-too-distant future. I don't want to, you know, that's been this incremental cost for the pack. The cost with the cell level is not this, you know, these costs at the pack when all the pack safety systems are included. The cost per kilowatt-hour of the battery pack is a highly proprietary number. That's something we'd guard pretty closely, you know, in terms of where it is at any given point in time.

Speaker 5

Maybe just one last question. What was the kind of thought process on opening up the reservation book for the Model X at this moment? I mean, clearly there's some demand for it, but are there any risks that there could be some cannibalization of Model S volumes?

Speaker 1

Yeah, that's a good question, actually. We were concerned that perhaps there would be some kind of cannibalization of the Model S. In fact, the opposite occurred. We've seen higher Model S reservations, not lower. I think it's kind of like when people feel that you've got more than one product in the lineup, that actually is complimentary. Kind of like you go into a store and it's better if the store sells pants and shirts, not just the shirt store. That's what we've seen. I think people saw the press and pictures of the Model X, and then some of them came to the website and said, "The Model X looks really cool, but I prefer a sedan," and bought the Model S. We've actually had customers who've decided to buy both. That's really the objective data, that it's complimentary, not competitive.

Speaker 5

Okay, thank you.

Speaker 6

Thank you. I'd like to remind everyone, if you wish to queue up to ask a question, please press star, then one on your touchtone keypad. Next question is from Andrea James with Barclays. Your line is open.

Speaker 10

Hi there.

Speaker 1

Andrea.

Speaker 10

What needs to happen before you can offer a test drive on the Model S to a customer? I guess, what seems to be the position of those first 5,000 customers? Will they all need to test drive, or will some be happy to take delivery without that?

Speaker 1

I think the assumption of customers is that they're just going to take delivery. There's no presumption of a test drive before delivery. There may be a few that want to do that, but my understanding is that in talking to those customers, really, is that they just want the car as soon as possible. In terms of test drives, we have to wait until the car is fully homologated. That's really effectively going to be at the point that we're delivering the first production cars. That's the middle of this year. It's when people will be able to take a test drive.

Speaker 4

Yeah. Over time, we'll have a lot more cars out there, Andrej. Clearly, any customer who wants to have a test drive before delivery, that should not be a problem at all.

Speaker 1

Yeah, absolutely. In fact, given the fact that there's excess demand for the Model S, even if somebody doesn't like the Model S, they should probably take delivery and then sell it because I expect that the cars will sell for more than the phenomenal price.

Speaker 10

Okay. It sounds like from your view, given the choice of delivering a car to a customer or setting that car aside for test drives, you would just do the delivery.

Speaker 1

Yeah. We're going to do a little bit of both. There will be marketing cars that are delivered to the stores for test drives. That's going to be happening in parallel with delivery to customers.

Speaker 10

Okay. Moving on to just Toyota, how has your communication gone with them as far as them saying, "This is what we need and when"? Do they give you hard targets or moving targets? Also, you said you're going to do a shipment in Q2. Is that in line with the rev rec on that contract? Thank you.

Speaker 4

Toyota, as you can imagine, has very established processes and systems. They have supplied globally, and they have a fairly stable production plan, which they share with us in advance. We have full clarity and visibility of what they need. The components that we will supply to them in Q2, the revenue on those will be recognized when we deliver those components like any other supplier.

Speaker 10

Okay, you think it'll be kind of lumpy there then?

Speaker 4

No, I don't think so. I think there's going to be a ramp-up as we take up the production rate, but it won't be lumpy.

Speaker 10

Okay, thank you. That's all for me. Thanks so much.

Speaker 6

Thank you. For the next question in queue comes from Adam Jonas with Morgan Stanley. Your line is open.

Speaker 8

Thanks, Matthew. Good evening, guys.

Speaker 6

Hey, Elon. Just to follow up on the test drive question, would the magazine's first chance to drive the Model S also coincide with deliveries to customers in the middle of the year, or would there be an opportunity before?

Speaker 1

It'd probably coincide, yeah. We definitely don't want to deliver. I mean, we really want the car to be as close to perfect as possible before we give it to any automotive journalist to test drive.

Speaker 6

Understood. Deepak, in 2011, it looks like your cash flow was just under negative $300 million or $290 million. Can you, at this point, confirm, given the assumption of 5,000 units deliveries of the Model S, that cash burn in 2012 should be significantly less than this amount? Still negative, but less negative?

Speaker 4

Yes, it will be. Our cash flow from operations here, clearly, we have reservations in play as well as working capital needs. In our case, as we ramp up, we can have some benefits in working capital given the difference in payments to our suppliers versus payments that we collect from our customers. Yes, it'll be less than that.

Speaker 6

Great. Just a follow-up on the CapEx outlook, the $200 to $220 million. Any rough split of how much of that is related to final spending on the Model S versus early spending on the Model X or the other buckets, which are going to include retail or development work or early Gen 3? Any idea of a rough split?

Speaker 4

As you clearly said, we have the buckets of spending on putting new stores out there, service centers. We are also going to do some Supercharging installations, as Elon mentioned, and then spending on the Model X. It's going to be, you know, the majority is, I would say, Model S. I'd leave it at that. I think that gives you enough granularity.

Speaker 6

I appreciate that. Just finally, on the Model X reservations, it'd be nice if we could continue that daily amount. Looking at that split, I know it's early data, but how does the reservation amount compare to the roughly $11,000 per reservation that you're getting on average for the Model S?

Speaker 4

I guess you may be getting to that average because we collect $40,000 on the Signature Series and $5,000 on general production. We have a combination of Signature and general production reservations on the Model X. I don't have that number offhand, what that breakdown is, but we're getting substantial Signature reservations, no doubt about that.

Speaker 6

For the X?

Speaker 4

For the Model X, yep. Yeah, absolutely. Yeah.

Speaker 6

Presumably, the order of magnitude difference on the upfront reservation per Signature Series Model X would be comparable to a Signature Series Model S versus the higher battery non-Signature Series Model S?

Speaker 1

For the Model S, there's kind of regular series, which is a $5,000 reservation, and there's Signature Series, which is $40,000. It's the same for the Model X. For the $5,000 number, it's independent of the configuration of the Model S.

Speaker 6

Understood. Okay, thanks very much.

Speaker 1

All right.

Speaker 6

Thank you. Next question in queue is from Ben Kilo with Robert W. Baird. Your line is open.

Speaker 7

Thank you. Good afternoon, guys. A lot of attention is being paid to the number of dies that you have in Fremont. Is it plausible that you don't have all dies there at the manufacturer's plant and you're still stamping some parts with your partner, yet still delivering vehicles? I know that's not your best-case scenario, but is that an option you would have to meet your delivery timeline?

Speaker 4

I think we have enough gap in between that we don't see that as a possibility. We expect just about all the dies, if not all of them, to be here by early Q2, which gives us enough time to fine-tune them and use them for the production cars.

Speaker 7

Would that be a possibility if something came up where you couldn't get the dies?

Speaker 4

There's always a possibility, yeah. We could always have a lot of cars produced at Fuji and have them shipped while the dies are coming. Clearly, that's not part of the plan.

Speaker 7

Okay, could you talk about how you get to the 10,000 to 15,000 delivery number outlook for 2014?

Speaker 4

For the Model X?

Speaker 7

Yeah, for the Model X.

Speaker 1

I think, yeah, we're just sort of scaling that as roughly a half to three-quarters of the Model S. It could be higher than that. I mean, I think there's, you know, based on the demand we're seeing thus far, it probably will be higher than that. We don't know how. I think it probably will be higher than that. It's difficult to expect later, it's an exact number, but let's just put it as a good conservative projection.

Speaker 4

I would say conservative projection, yeah.

Speaker 7

Okay. Great. Finally, you just talked about your five-star rating and the timing around that. We don't need that five-star rating before the cars can actually be sold. Is that correct? Is that how I understand it? Like that could come after you start marketing your cars?

Speaker 1

Yeah, I mean, you do everything that's necessary to achieve the five-star rating, and then it is officially awarded at some point after start of production. Yeah, but you pretty much know in advance what it's going to be. Yeah.

Speaker 4

You're right. We don't have to have a five-star rating to get the car in production. It's our goal to get there.

Speaker 1

Yeah.

Speaker 4

There's no regulatory requirement.

Speaker 1

No, absolutely. I mean, really, our goal with the Model S was to create the safest car on the road. To be the safest car on the road, you really want it obviously when it's five-star in every category. Actually, there isn't a six-star, but we've aimed for kind of a virtual six-star to achieve the highest possible safety rating.

Speaker 7

Okay. Great. Thank you.

Speaker 1

Go ahead.

Speaker 6

Thank you. The next question in queue comes from Carter Driscoll with Capstone. Your line is open.

Speaker 2

Good afternoon, gentlemen. First question is around potential financing options. Obviously, maybe not quite as relevant for the Model S or the Model X, but maybe you could talk about what you're attempting to line up for more of a mass-market Gen 3 vehicle.

Speaker 1

Oh, sure. I mean, we'd expect to have the full range of leasing and financing options that people are used to seeing for cars. They're probably working with a number of large financial institutions to make that happen. We've had some very promising talks. We definitely want to make sure that the cars are as affordable as possible. I think there's an argument, actually, that the appeal of electric cars on the leasing side is going to be greater than on the purchase side. We certainly see that in solar. It's much more appealing to have a solar system on a lease basis because people can then compare that directly with the cost that they're paying from the utility.

Since the cost of electricity is so much less than the cost of gasoline, it's really sort of we're talking about an order of magnitude difference by leasing the car and adding that cost of electricity versus comparing the lease cost of a gasoline car and the price of gasoline, which is likely to be increasingly expensive. The value proposition to customers on a purely economic level is going to be that much more compelling.

Speaker 2

That's helpful. That's what I was kind of driving at, in terms of the volatility of the residual value and using a much more constant kilowatt-per-hour price nationally than certainly differences regionally in gasoline prices. My next question is, maybe you could, in your own opinion, Elon or Deepak, talk about the different model options you expect people to take in the different models or maybe even compare and contrast the Model S versus the Model X. We could kind of drill down into what you think an ASP might look like, a final ASP might look like, and not necessarily just the base price, at least your best guess.

Speaker 4

I think Elon sort of answered that at a higher level in one of the earlier questions. Initially, we will have the Signature Series, which is 300 or the 85 kilowatt-hour battery pack, and then we'll have the base 85 kilowatt-hour battery pack. In addition, we're going to offer the performance version, which we expect to have a fairly significant decrease given the specs on that. Between that and the options, we wouldn't be surprised if there's on average a $10,000 to $15,000 pickup above the base price, which is fairly normal in the premium segment. In 2012, it becomes a mix of sales, or 2013, rather, becomes a mix of sales in Asia and Europe, where pricing structures are different and the content, what's standard versus optional, is different. As we sort that out for 2013, we'll provide more granularity.

I think 2012 is fairly clear, given our plans of launching the different series for time.

Speaker 6

Okay. Just keeping an eye on the time here, we probably have time for questions from maybe one more analyst. Operator, just one more, please. The next question then comes from Michael Liu with Needham. Your line is open. Thank you. I'm sorry, Michael, your line is open now.

Speaker 2

Oh, okay. Thank you. Good afternoon in California. You had mentioned other potential supply agreements and partnerships in the pipeline. I realize Daimler and Toyota are solid partners, but could you give us a sense of how many other ongoing powertrain development discussions are going on with other automakers? Are they for more mainstream vehicles or luxury type of offerings?

Speaker 1

I'm sorry, but I can't give any color on that.

Speaker 2

Okay. I also just wanted to follow up on your comments regarding a Gen 3 mainstream model. Would this be an EV targeted more at the emerging markets, like, let's say, China, or a broader-based type of offering?

Speaker 1

It would be targeted, I think, worldwide.

Speaker 2

Worldwide.

Speaker 1

It certainly includes China. I mean, I wouldn't say necessarily every country in the world, but it's certainly China. It's pretty hard to ignore China as a market these days. You know, I think we're, in fact, we expect to be selling the Model S and the Model X in China.

Speaker 2

Okay.

Speaker 1

We think that there could be a lot of appeal, interestingly, for the Model X in China.

Speaker 2

Got it. Okay. Also, regarding your prior comments on sales cost reductions from the current kilowatt-hour pricing, how much would it be, let's say, scale-driven versus immaterial change-driven? What would be the split on that based on?

Speaker 1

That's a good question. Even without any material changes, done efficiently at scale, you can get a current chemistry below $200 a kilowatt-hour. You know, I think that you will see material changes over time that amplify that opportunity. Yeah.

Speaker 2

How long would it take to, let's say, qualify an enhanced or material-driven change if you wanted to, let's say, implement it on, let's say, the Model S or an existing model at that time?

Speaker 1

I think you'd kind of see most of these material changes coming because you have to implement them at large scale. It's not as though you can have something that's just like working in a lab and then very rapidly bring that to full-scale production. Plus, you have to set things like calendar life degradation and particularly in cycle life degradation. You tend to see cell chemistry changes coming from a few years away. We've got a roadmap of changes that look pretty interesting and result in steady improvement year over year. That's not to say we would go and implement a new chemistry every year. I think we'd probably look to implement new chemistries probably every three years or something like that.

Speaker 2

Okay. Got it. Thank you.

Speaker 6

Thank you. I'd like to turn the call back to our presenters for any concluding remarks.

Speaker 0

Thank you, everyone, for joining us. We look forward to seeing many of you over the coming weeks as we attend conferences. In particular, we will be at the Jefferies Growth Conference next week in New York City. The week after that, we will be at the Morgan Stanley Technology, Media, and Telecom Conference in San Francisco. We look forward to seeing many of you at those events. Thank you. Goodbye.

Speaker 6

Thank you. Ladies and gentlemen, thank you for your participation on today's call. This does conclude the program, and you may now disconnect.