特斯拉 (TSLA) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tesla Motors' fourth quarter 2010 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded.

And now I'll turn the call over to Jeff Evanson, Vice President of Investor Relations. Please begin, sir.

Thank you, Tyrone, and thank you everyone for joining us this afternoon. Welcome to Tesla Motors earnings call for the fourth quarter of 2010. With me on the call today are Elon Musk, Chairman, Product Architect, and CEO of Tesla Motors, and Deepak Ahuja, our Chief Financial Officer.

Before we begin the call, I'll read the following statement to inform you of certain Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. During the course of this conference call, we will discuss our business outlook and make other forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are only predictions based on management's current expectations.

Actual results or events could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recently filled 10-Q filed on November 12, 2010 and our financial prospectus related to our initial public offering filed with the SEC as amended on June 29, 2010.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

With that, I'll turn it over to Elon.

Thanks. The fourth quarter was just another solid quarter of execution on all aspects of our business, including Roadster Model S and Powertrain. The Model S alpha phases went really well. I'm very pleased with that and the development of the Model S is on track. We did quite well in the Powertrain business with increases in deliveries for the -- and orders for the Smart EV, completed the development program from Daimler A-class, and commencement of the Toyota RAV4 EV development program. We've also added a tremendous amount of talent.

I think this is a point that's really worth emphasizing that the quality of people we're attracting to Tesla is just really phenomenal. I mean it's absolutely at the best of the automotive industry and of the high-tech industry. I think perhaps one of the best indications of this is if you were to attend a college fair, any one of the college fairs where Tesla is present and look at the line at the Tesla booth and compare that to the line at any other booth, including Facebook, Google, Apple, or anyone else, the Tesla line is the longest line at the entire recruiting fair. I think that says a lot.

The [growth] of the business, that's been doing pretty well. It's increased 10% sequentially in revenue driven by better selling prices and a favorable leasing mix. Despite seasonality, because obviously people aren't really looking to buy a two-seater convertible sports car in the middle of winter, we delivered 149 Roadsters globally, on pace with the result in a much easier selling environment of the September quarter.

We have also increased the order for Lotus going to a total of 2,500 cars from 2,400. We're not going to increase it anything beyond that, even though there is actually a demand that's in excess of above maybe 2,500 vehicles, because we want to stay true to our original commitment that the Roadster is intended to be a collector's item, limited edition collector's item. So we're increasing it just by 100 vehicles from 2,400 to 2,500 because we have seen quite a bit of demand, but we're not going to go beyond that. But it will allow us to sell a few more units in 2011 and 2012.

As far as retail expansion, we opened a new story in Tokyo, where Akio Toyoda personally attended, and just recently last week we had the Washington D.C. and Milan store openings.

Coming up, we're going to have the San Jose store in Santana Row opening in a few months, and this is going to be one of the first stores that really emphasizes our new model for selling cars. We're not quite prepared to talk about it now, but I think it will be something that's worth paying attention to in the future.

Model S is on plan for first [customer] deliveries in mid-2012. So really no change from what I talked about in the last quarter or that we mentioned at the IPO. (Inaudible) reports to be a slow ramp in production of 2012 with it reaching steady-state production in 2013 as we've talked about in the past. So as far as the alpha build, I drive the alpha build, the latest alpha build every week and I must say I think the car is great, even at this early stage. Although it is a sedan, which is comparable in size to a 5-series BMW or a Mercedes E-class, or an Audi A6, it feels very light, agile on the road, has tremendous power as you'd expect from a Tesla or from something with an advanced trajectory motor. So I'm really pleased with how the project is developing. I really, I think this car is going to be the car that even if it wasn't electric would be the preferred vehicle among premier sedans.

So we've completed as scheduled last quarter so we're driving in December and accumulated a lot of miles now. We've actually finished just this week our 15th alpha prototype, body-in-white prototype and last month we exhibited a nice photo view of the body-in-white at the North American Auto Show in Detroit. Part of the goal of that show was really to emphasize the quality of vehicle engineering at Tesla, because this is one of the least appreciated aspects of Tesla's capabilities. I think people generally appreciate that we've got the world's best Powertrain. They can obviously appreciate the aesthetics of the Model S by looking at it, but we really had to go under the skin to show that the vehicle engineering is just as good as the Powertrain engineering and the aesthetic design. It's an all aluminum body and chassis. In fact, we'll be the only aluminum car made in North America. The next most advanced car is probably the Audi A8, which is obviously made in Germany, but we feel there are reasons to say that the Model S is actually more advanced and better on the objective metrics, so things like torsional rigidity, stiffness-to-weight, strength-to-weight, safety characteristics, internal useful volume, that kind of thing, than the A8.

So yes, it's going really well in that respect. I feel very, very, very confident about having compelling data that will be available for test drive the summer of this year.

We just spoke to Fremont, our manufacturing facility, and this is really a substantially integrated manufacturing facility for the Model-S. This includes stamping, plastics, paint, paint and body assembly shops, and manufacture of Powertrain components. This is -- we're really taking advantage of an amazing infrastructure that we inherited from Toyota where they made the Toyota Corolla and Tacoma trucks. So and I -- some will disagree with this strategy, but I think vertical integration is a smart move. It allows us to adapt quickly to rapidly innovate and also to control our unit class.

This is quite important for a small car company because we don't have the leverage of a large car company. So whereas a large company could -- has leverage with suppliers because they can always say, well, fixed income you don't do a good job on this program you're -- we're going to not give you access to another program or something like that. We don't really have that flexibility or leverage. So it's important for us to say, okay, if you as a supplier are not going to do a job for us, we'll in-source and have that be a credible threat.

The [large] hydraulic press line is being assembled in Fremont on schedule. This is really epic. I mean it's the largest press line in North America, one of the largest in the world and we expect to be fully assembled by the second quarter of this year.

We finalized the Model S production layout and we're going to -- we're actually going to design it to allow for 20,000 units on a single shift, slightly different from our prior plans where we had 20,000 on a double shift. It's a little bit of extra money spent now. We think it lays a better foundation for the future because it means that we can go to double shift or even, say, a triple shift and quickly adapt to increased customer demand, particularly bringing in something like the Model X if we want to rapidly scale to sort of annualized production of 40,000 or 50,000 then this allows us to do that without having to reconfigure the line substantially.

The Model S alpha Powertrain is looking very strong. I don't think this is a risk at all for the Model S. In fact, I think it will be better than -- it's better than what I expected and my expectations are very high. So I think this is looking really, really strong. I'm very excited about the idea of sort of a sport version of the Model S or a performance version of the Model S that potentially outperforms something like the M5, which I think would be a great product.

Supply sourcing for production remains on track. Really, it's almost entirely done and this is an important data point because one of the questions as well is how it's going to stay on track for the expenditures for the Model S program in terms of total ED&T and all that, as well as just how we'll have sort of a handle on the unit cost. I think having almost all suppliers, almost all supply agreements done and then we'll say that, yes, we feel good about both of those elements I think is very important, and that is the case.

So we have (inaudible) for equipment and process modernization, the paint, which is (inaudible) and I talked before about how important I think paint is. This is a really, really important detail on a car. So on the body shop side, (inaudible) for final assembly (inaudible). [Towing] supplies kick off is also underway -- kick off towing for our guys for our guys for stampings. That's -- Fuji is the device power there. They're hard at work and have been for a few months.

As far as Model-S reservations, we now have over 3,700 reservations. Bear in mind that minimum amount for reserving a Model-S is $5,000 so it's not like it's a $100 reservation. It's a $5,000 reservation and we're still locating very minimal resources to this effort and it's really going to be around the middle of this year, in the second half of this year really when we start to ramp up our sales effort on Model-S. So coinciding with the -- with having beta vehicle that we can give people test-drives in.

On the strategic relationships front, just drill into that a little bit more. The Daimler business continues to progress well. Daimler has increased their order by 300 vehicles to 1,800 for this [March]. This is a good time that Daimler has increased its order, which was originally just 1,000 units. So I think it shows that there's continued interest from Daimler and we delivered a record amount of battery packs and charges in the fourth quarter. As far as the A-class, EV, as I mentioned the development work is essentially done. We're now shipping production battery packs and chargers. So that looks quite promising.

Then for the Toyota RAV4 EV, total development revenue is potentially about $69 million. In this case, you're providing and electric Powertrain work including the motor, and gear [parts] in addition to the battery, the charger, and software. And we met the first major milestone under the agreement. We've been delivering RAV4 prototypes since July and we're just about to finalize the production supply agreement, and obviously, Toyota choosing to have (inaudible) is a tremendous endorsement. I think really having both Toyota and Daimler, I mean Daimler is a company that invented the internal combustion engine car. Toyota is the largest car company in the world and the leader in hybrids, and to have them as a strategic partner is obviously a great honor for us and really couldn't ask for a better endorsement of our core technology.

Then there's also Panasonic. Panasonic, you may recall, has -- they invested in Tesla late last year, which is great validation. They were also kind enough to state publicly that Tesla has the most fast factory patent technology in the world for EV applications. We continue to work to optimize the 18650 form factor specifically for automotive use. This is an important point that sometimes people aren't aware of, which is that the -- although with Roadster we use an almost unmodified laptop cell, in the case of Model S it is actually a highly modified cell that has the same external dimensions as the laptop cell so we can use the automated cell handling equipment, but it is significantly different internal geometry. This redesign has come at the behest of Tesla and we're able to transfer that, those changes to other suppliers. So this is not an exclusive supply group that we have with Panasonic and we do expect to establish a second source for cell supply given its importance, although Panasonic of course remains our preferred -- our number one cell supplier.

So as 18650s in general, we see at least for the next several years, we do not see anything better than an 18650. And for those that think that there's a larger format cell that's better, I would simply ask what is because the kilowatt hour was (inaudible) and until some cell supplier comes back to us with a number that is better than the 18650, for us it would be foolish to use anything except the 18650. It's really as simple as that.

Just a little bit of operational guidance, last quarter our primary objective was the completion of the drivable alpha prototype. You can see videos on our website about a car doing great [carving] turns through Southern California. This quarter, our Model-S related activities include finishing up with the three developers, doing extensive testing of the alphas in right climates, testing braking safety, handling, NVH, and all the rest. We're completing the last cohesive (inaudible) to our suppliers and executing detailed ratings plans at each of the stamping, plastics, paint, and final assembly shop.

Later on this year, we'll be going into beta build and beta build is kind of like -- it's an expansive, high-tech term, but when something is at beta stage it is almost instinctual from the production article except that of course there's a series of bugs that have to be worked out, and maybe some [corner] case functionality that needs to be added. And I kind of think that it's really -- what you see in the beta phase is almost identical to what you would receive in production. And we're, like I said, we feel confident of having our first beta build this summer.

So and then just maybe a few sentences just on the Model X and really clarify a few things on that before I hand it over to Deepak Ahuja, because there have been a few incorrect (inaudible). But the Model X is a variant on the Model S platform. So it is a crossover SUV with intent to be cooler than any other SUV, that's our aspiration. But it actually had a functionality that (inaudible) out of a minivan. This is a tough goal to achieve and I think we've got a shot and doing that, especially what we're aiming for. So the pricing would be comparable to that of the Model S and so this is not our sort of third generation mass production vehicle. That vehicle is still several years away, but the Model X is really just a way of generating potentially twice as much volume in the premier vehicle segment by offering a crossover SUV in addition to a sedan. And we're looking to unveil the design prototype of that at the end of this year.

And with that, I'll turn it over to Deepak.

Thanks, Elon. The primary takeaway from the quarter is that in addition to delivering on the Model S, as Elon has shared with you, we've continued to improve revenue and gross margin of our existing business. As the December quarter marked the end of our fiscal year, I'll discuss both our quarterly and annual performance and then conclude with some thoughts on guidance.

While discussing the financials, I'll provide commentary on both a GAAP and non-GAAP basis. Our non-GAAP financials include -- or exclude, sorry, non-cash charges related to stock-based compensation and change in the fair value our outstanding stock warrants. A reconciliation of the non-GAAP information is included in our earnings release.

Looking first at the P&L, overall revenue for Q4 was $36 million, a 16% increase over Q3 and almost double that reported in Q4 of last year. For the year, revenues were $117 million, up slightly from $112 million for 2009. Given that we were shipping Roadsters against a two-year backlog during most of 2009, we believe the 2010 performance is a strong result for the Company.

Let me remind you that we report revenue in two categories, automotive sales and development services. Automotive sales consist primarily of Roadster sales and to a lesser extent, the sales of Powertrain components to OEMs as well as zero emission vehicle credits. On the other hand, development services revenue consists of services we provide to other OEMs to develop electric Powertrain components and systems for their vehicles.

Starting with the Roadster portion of our automotive sales, as Elon mentioned we delivered 149 Roadsters in Q4 versus 151 in Q3. We believe this is a very good result given that our sales have some degree of seasonality during the winter months. Average selling prices increased as compared to the prior quarter. This result, when combined with a lower leasing mix, contributed to a 10% sequential increase in Roadster related revenue to $20 million in Q4. For the year, Roadster revenues were $76 million as compared to $112 million in 2009. A comparison to that is (inaudible) storages again due to the two-year reservation backlog in 2009.

Looking at the Powertrain components portion of automotive sales, revenues were up almost 80% sequentially to $9 million in this quarter. We achieved our third consecutive record quarter for deliveries of battery packs and charges for Daimler. As Elon noted, Daimler increased its order by 300 battery packs and chargers for the Fortwo EV, hence the total program is now up to 1,800 units. We currently anticipate delivering these components until the summer of this year.

In Q4, we also started recognizing revenue from the delivery of battery packs and charges for the Daimler A-class program, which we expect to continue through the balance of 2011. It's worth noting that our revenue per unit for the A-class battery pack is actually double than for Smart Fortwo, which is in proportion to the increase in the size of the battery capacity.

For the year, Powertrain revenue was $22 million. This portion of our revenue stream was negligible in 2009 since we had just started shipping production Powertrain components in Q4 of 2009. Overall, automotive sales revenues increased sequentially by 25% to $29 million, which we believe is a strong result, and on a full year basis, automotive sales revenues were $97 million as compared to $112 million in 2009, again due to higher Roadster sales in 2009 to clear out the two-year reservations backlog.

Turning to development services revenue, development services revenue decreased sequentially by 10% to $7 million in Q4, primarily due to the completion of the Daimler in-class development program during the quarter. But this was partially offset by work underway on the Toyota RAV4 EV program. After agreeing on the final specifications of the RAV4 EV during Q4, we now have the opportunity to earn up to $69 million in development services revenue as we execute on our deliverables. We currently anticipate recognizing this revenue over the next four or five quarters given Toyota's stated intent to enter production with the RAV4 EV in 2012. And just as clarification, the sale of production parts for the RAV4 EV will be part of a separate agreement, which has not been finalized yet.

On a full year basis, development services revenue in 2010 were $20 million. The comparison with 2009 is not meaningful here since we started recognizing revenue for development services only in Q1 of 2010.

Total gross margin for the quarter was a record 31% as compared to 30% last quarter. Gross margins increased across all revenue lines showing great execution by our entire team. Gross margin from our automotive sales was 20% as compared to 17% in Q3, the highest we've ever achieved in any calendar quarter. This was due to a combined focus or a continued focus on both average selling prices and cost reductions. Gross margin for development services was 78% in Q4, as the timing of revenue recognition did not fully match the period in which we booked the underlying cost of revenues.

This [mismatch] was further heightened in Q4 with the completion of the A-class program and the start of the Toyota development contract in the same period. Remember that this gross margin for development services is not an indicator of future performance due to these timing differences.

Total gross margin for the year increased from just 9% in 2009 to 26% in 2010. While this increase was partially driven by a change in mix between the automotive and development services revenue, we also increased automotive gross margin from 9% in 2009 to 18% in 2010. This shows the extent of improvement we've been able to achieve in both our Roadster and Powertrain activities. We're intent on keeping the same discipline on the Model-S program as well.

Our operating expenses continue to reflect continued emphasis on the development of the Model S and our spending on infrastructure. R&D expenses were $38 million for the quarter on a GAAP basis and $36 million on a non-GAAP basis. Non-GAAP R&D expenses increased 40% sequentially, primarily due to expenses related to the Model S alpha prototype build and one-time relocations expenses of our vehicle engineers from LA to Palo Alto. We also had higher production and engineering headcount that grew by 15% during the quarter, and the accelerated completion of engineering work underway at several suppliers.

We expect quarterly spending in 2011 to increase moderately from the Q4 level as we continue to execute on the Model S program, and the spending may be lumpy in some quarters.

SG&A expenses for the quarter were $25 million on a GAAP basis and $20 million on a non-GAAP basis. The 9% increase in our SG&A expenses on a non-GAAP basis from the prior quarter is due principally to the growth of our sales and marketing activities, and headcount to support the continued growth of our Company globally. We expect quarterly SG&A expenses in 2011 to increase slightly from the Q4 level as we continue this global expansion. This will be offset by our continued cost control and G&A. In summary, we are closely monitoring expenses and have strong controls in place to ensure that our spending is transferred to our plant.

We are incurring a net loss despite improved margin and will continue to do so for the next several quarters, while we are making significant investment in R&D and our infrastructure to launch the Model-S. Net loss for the fourth quarter was $51 million on a GAAP basis. This loss included $8 million of non-cash stock-based compensation, of which $3 million related to our Model-S based performance grant, reflecting a higher probability of achieving future milestones.

Without these expenses, the loss in this quarter on a non-GAAP basis was $44 million or $0.47 per share with 94 million weighted average common shares outstanding. For the year, net loss per share was $3.04 on a GAAP basis and $2.53 on a non-GAAP basis with $51 million weighted average common shares outstanding.

As a quick note, we expect that most of our interest expense would be capitalized until the start of production of the Model S, since the DoE loan is being used to build out the Tesla factory in Fremont.

Turning now to the balance sheet, total cash including our cash in the DoE dedicated account was $173 million at the end of the quarter. This compares to total cash of $185 million at the end of the prior quarter. Combining total cash with the remaining DoE facility, we had capital resources of approximately $566 million available as of the end of the year. We currently anticipate that this will be sufficient to fund our operations through the launch of the Model-S based on our present plans.

Looking at cash flow for the quarter, operating activities consumed $34 million as compared to $46 million in the prior quarter despite a higher operating loss in Q4. The majority of the cash used in operating activities during Q4 is reimbursable under the DoE loan as it relates to our expanding R&D spending.

Our inventory continued to grow to support our Roadster and Powertrain sells, but at a slower rate than the prior quarter. For the next few quarters, we expect inventory to continue to rise as we have elected to build Roadsters at a faster pace than our sales forecast given that Lotus production of Roadster gliders was installed just after year-end 2011 and we intend to continue with Roadster sales in 2012.

Capital expenditures were $24 million in this quarter as compared to $67 million last quarter. Recall that last quarter's numbers included $56 million related to the acquisition of the Fremont facility. Over the last two quarters, we have made opportunistic purchases from the old NUMMI operations, particularly in stamping and plastics, which is allowing us to in-source a greater number of cars where we believe it makes good business sense. For the full year, we invested approximately $105 million in CapEx. This was lower than we anticipated, mainly due to timing. We expect that this deferral in spending will now show up in 2011.

Offsetting our cash usage in the quarter was the drawdown of $15.3 million from our DoE loan facility at interest rates under 3%. Since the end of Q4, we have drawn an additional $15.6 million from the DoE loan facility related to our Q4 spending. I shared with you earlier the DoE funds half the expenses up front and the remaining half on a deferred basis.

Next, I'd like to offer some thoughts on guidance. Since we remain focused on the long-term objective of delivering the Model S on time and its planned profitability, we are providing full year financial guidance for 2011. We project revenue to increase by about 40% to 50% in 2011 to a range of $150 million to $175 million. We expect Roadster sales to grow over last year, but still expect some seasonality during the winter months.

The [core] Roadster program, as Elon mentioned, is now 2,500 units and we have delivered for 1,500 so far. Thus to the extent we exceed planned Roadster sales in 2011, we might not be able to admit all the Roadsters in (inaudible) in 2012. As Elon mentioned, 2011 should be our biggest year for capital spending for the Model-S program, as we will purchase most of the tooling and manufacturing equipment acquired for production. Looking at all of our capital expenditures for the full year, we expect to invest about $190 million to $215 million. Remember that the majority of these capital investments should be reimbursable under the terms of our DoE loans. With this level of CapEx spending, we can execute on our strategic decisions to increase in sourcing primarily in stampings and plastics. We've also elected to invent incrementally new technologies primarily in our paint and body shops to produce even higher quality at affordable costs.

Furthermore, we are investing an additional plant automation, as Elon mentioned, to expand capacity to produce up to 20,000 units on just one shift. This has about a one-year payback in terms of saved labor and overhead cost. The strategic benefit of this decision is that it also accommodates either higher Model S production or the efficient introduction of future models, such as the Model X.

Finally, as we have concluded negotiations with most of our buyers, some investments planned for 2010 have been deferred into 2011, while others have come in at a slightly higher cost over plan. Please remember that all depreciation of our capital expenditures related to the Tesla factory will begin after we start our Model S production.

Moving onto Model S reservations, we had received slightly over 3,400 Model S reservations as of December 31 and have now surpassed 3,700. We planned to disclose this number of refundable reservations received during these earnings calls, but will not provide future guidance on this number. Since we're not actively focused on getting Model S reservations at this time, we did not regard the number of new Model S reservations received in any given quarter to be an indicator of our performance at least for the next year or so.

I'd like to conclude in summary by reinforcing that we continue to be excited about our long-term opportunities.

This ends my prepared remarks.

Okay, analysts, and just a quick note to all of you and our investors as well, we just want you to note that when comparing our results to what services, such as Thompson-Reuters present as consensus expectations as these services are reporting a 2010 annual loss expectation of $2.23 per share, and clearly this is incorrect since even before this quarter we had already reported a year-to-date loss of $2.50 a share. We think this discrepancy appears to be driven primarily by a misread of the sell-side analyst models and that may be attributable to the difference between past, actual, and pro forma share accounts. So analysts, we ask you to please make sure that going forward the consensus service providers actually accurately reflect what your expectations are.

So with that, Tyrone, let's now open the call for Q&A please.

Yes, sir. (Operator Instructions) Our first question is from Dan Galves of Deutsch Bank. Your line is open.

Thanks very much. Congratulations on a good quarter. Can you hear me?

Yes.

Okay, great. Just wanted to think about -- how should we think about cost expectations, how they've changed for the Model S over the last couple of quarters in terms of raw material, changes to raw material pricing that you've seen in the market. It sounds like this investment in automation for 20,000 units on one shift is a cost reduction, but as you've gone through the supplier sourcing process how have your cost expectations, unit cost expectations changed for the Model S?

I think they are in line. So there's always a little bit of fluctuation in the cost of a car, but really we feel pretty confident of being able to achieve I'd say really good margins on the car. I mean there's slight sort of issues with maybe currency risk amongst some of our suppliers or some chance of raw materials going bonkers. I mean those things can affect cost. But overall, I feel good about achieving a 25% gross margin that we think we can achieve with the Model S. So I'd say this really reaffirms our ability to do that.

Okay, thanks very much. On the vertical integration strategy, you talked quite a bit about, is there any part of that that essentially the timing of validating some of your processes, could there be a chance that you get to the point where you want to outsource a part of the vehicle production and do you have backup plans? Or is there any part of that vertical integration strategy that could really change the timing of the Model S launch if it didn't work the way you thought?

No, it's actually essentially the opposite, which is to reduce the risk of having one or two suppliers that caused the delay in deliveries of Model S. The basic philosophy for in-sourcing is to, if we need to, to be able to do almost anything in-house. So we don't expect to do everything in-house because that would be foolish, but to have the ability, to have that optionality to say worst-case scenario we can crank 24/7 internally and make that part ourselves is incredibly powerful. It's -- and I think also it helps to keep suppliers honest if they know that we have that ability. Because sometimes what can happen is suppliers will wait until quite late in the game before trying to raise costs on you or do some kind of bait and switch, or tell you -- or reveal that they really can't deliver. I have seen that so many times and being able to rally the troops internally and solve that problem is I think very, very important for controlling one's destiny.

Just one other quick one. Can you give us an indication of incremental investment for new top hats and potential timing for those vehicles after Model S?

Yes, a fair amount of these are just rough approximations, so I wouldn't treat this as cost for anything. It's been for something like Model X, we're thinking it's between a $100 and $150 million. Total CapEx, hopefully we're trying to do it at the lower end of that. But even if it's at the higher end of that, I mean it's a ridiculously good return on investments, so it's an obvious move.

Okay, thanks very much.

Thanks.

Thank you sir. Your next question is from Joshua Paradise of Morgan Stanley. Your line is open.

Hey, guys. Congratulations on great execution and thank you for taking the question. You talked a little bit about the battery chemistry that you're developing with Panasonic. So I guess is the chemistry that you're going to use in the Model S, at least in the first version of the Model S, finalized, or is that still under development or refinement?

It is finalized in the broad brush strokes. There are a few financial items that are little details that will continue to be optimized over this year, but there no major outstanding question marks. We're very pleased with the results we're getting in our test packs. I think people will be pretty impressed with the results. I think it's, as far as I can tell it's more than what anyone thinks is possible.

Can you give a little bit more information on what you are refining, is it the chemistry, is it the internal geometry, is it something else?

All of the above, yes. There have been some tweaks to the internal chemistry, a lot of tweaks to internal geometry, and it's fairly proprietary, so we can't talk about exactly what they are. Of course, as soon as we have the car on road, then you can buy a car and then do your own post-mortem here, start dissecting the pack and the sale, but we'll leave it to that point before they can --- before they know what exactly we've done.

Right, and then in the past you've talked about potential agreements with other OEMs. Obviously, you have a strong agreement with Toyota, you have Daimler. Can you give any update on where you are with discussions with other OEMs?

Yes, we are -- we've had some recent significant discussions with OEMs, with other OEMs besides our two main partners. I mean we do need to be a little cautious about engaging another big OEM deal, co-development deal right now, given the importance of the Model S program, and focus on that as well as making sure we do a great job for Daimler and Toyota. I mean I think we definitely have our hands full right now. I think we want to make sure particularly with respect to the RAV4 development, which is a very intense development program this year that we do a really great job for Toyota, and then like I said for the Model S as well, which is kind of our main stay. So, think of it like, it's not as though there aren't deals that we could do it we wanted to do them, but we have to be -- make sure we don't bite off more than we can chew.

Okay, thanks so much.

Thank you. Our next question is from Patrick Archambault of Goldman Sachs. Your line is open.

Hi. Good afternoon, everybody. I guess a couple questions. On the CapEx spending, I think you had said $190 million to $215 million for 2011 if I got that right. Deepak, how does that compare to what you had originally envisioned for the year? And maybe could you tell us a little bit about some of the variances, what was timing, what's increased vertical integration, what's maybe just cost that is a little higher than you guys had budgeted?

Yes, Pat, it is higher than our initial numbers, but for very good reasons that we have fully vetted out and understood, and as we said, as Elon and I have discussed, I think, it's all strategic related to what makes sense for us to in-source, particularly in stamping and plastics, what makes sense for us to go invest in better technology to get that high quality in the paint shop, to get that perfect fit and finish in our body shop. What makes sense for us to add that --- spend that extra bit of money and get the 20,000 units on a single shift and get a good payback, which helps us to achieve our total profitability. I think, the bottom line of all of this is that we have sufficient sources of cash on hand, as I mentioned, the $566 million between cash and the DoE loan facility that we feel comfortable about completing the Model S program with that funding in place.

Yes, in fact I'd just like to reemphasize what Deepak just said. Even if we raise no additional funds at all, we have sufficient availability of capital to complete the Model S program and reach profitability. I think this is perhaps -- I just want to be really explicit about that. Now, I think that there is a likelihood, in fact, I mean, arguably an expectation that we will raise some incremental capital for the Model X program. But that would be maybe towards the end of this year in terms of timing. It's not like in the immediate future. I think we wouldn't do it any sooner than after the Model S beta is unveiled. People perhaps can feel -- can sort of get a more direct sense of what kind of products Tesla can deliver and are they really great products or not, but that seems like the sort of soonest timing that we would do it.

On that note, is kind of the incremental capital that you'd be looking for, for the Model X program, is that sort of in the zip code of what you outlined to Dan there? I think you said $100 million, $150 million, or something.

Yes, it would be probably in the order of $100 million to $150 million type of thing.

Okay, and one the beta prototype, when do you guys actually start testing on that, excuse me, for safety ratings?

Actually, the safety stuff is already underway with the alpha prototype. And that testing is then used to calibrate crash simulations, and then we make modifications from those initial safety tests that are being done with the alphas. There's a slight design integration going to the betas, so just to be clear that that crash testing is actually going to start very shortly, and we've already started safety testing of doing things like the ABS brakes testing, which is underway with Bosch. And that was an important milestone because we needed to get cold weather ABS testing underway, which is great. That's happening now. Then there is going to be another period of intense crash testing for the betas starting towards the end of summer, and then yet more crash testing that takes place once we have our release candidates, because the beta is caught in sort of 98%, 99% production design, but it isn't entire made with production tooling. So we have to get another confirmed confirmation step with the release candidate articles, which would be kind of in the roughly 11 to 12 months from now. That's just to confirm that the process used to manufacture the cars results in cars that are consistently of the design intent.

So, there is a whole lot of crash --- there is a tremendous amount of crash testing taking place. Because our standard that we're --- what we're aiming for here with Model S is pretty extraordinary in terms of safety. We're aiming for sort of all round five star rating by 2012 standards, which is a very high standard to meet. A car that was five star by 2010 standard would be a three star in 2012. So this is important to appreciate just how high a bar it is that we're aiming for, but we could miss that standard by a mile and still be better than other standards on the road. So but we want to be the best, so that involves a lot of crashes unfortunately. So I mean, we have to do them, but it is sad to see so many getting mashed up, but then this is extremely important competitive dimension, and to me, I'll have my family in it, my friend's families. I want to ensure that this is -- that we can say that there isn't a safer care on the road. Sorry for the laborious answer.

Got you. I guess, I mean one more question related to that actually is, is the release candidate, can you talk us through is that what -- you have kind of I guess an assembly tooling product that you released and that's when you get your final rating, and that happens some time next year. Is sort of that the way to think about it at the end of your internal testing process, is that how it works?

Yes, in the US, it's kind of, I guess a self-certification process. I mean you conduct the tests, you compile the data, but then your tests aren't chaperoned by others. It is different in Europe. The tests are chaperoned, so we'll be doing these tests both according to US and European specifications because a Model S is designed to a similar set of those requirements. So it's actually, it's more of witnessing tests more on the European side. But yes, it's basically --- the alpha is about validating the --- calibrating the crash simulations to the computer models matched to what we see in reality, is there anything that we learn that is perhaps not captured in simulations. And then we do an iteration, go into beta. In the beta phase, we sort of confirm the corrected design. So there would be some sort of minor iterations in the beta phase, and then the release kind of phase is really just confirming that we've been consistent to the way that we make actual vehicles.

Got you. Well, one last just small modeling thing. Can you tell us how many battery units you sold for the quarter?

I don't think we have publically shared that information so far, Pat.

Okay. How about [Fed] credits, do you have that handy?

I think we do mention that. It's about $800,000 in Q4.

Yes, and just on the (inaudible), for the Model S, our margin assumptions depend only very slightly on Fed credit. I think it's only like a few percentage points, or something like that.

And it's broader than Fed credits. It's global and it's on any other trading of foreign credits that may be happening in Europe.

Yes, as I said, we are seeing a little more interest in Fed credits than we previously thought might be the case. But we will see. We don't know if that's going to materialize or not.

Great. Thanks a lot, guys.

Thank you, again. (Operator Instructions) Our next question is from Andrea James of Dougherty & Company. Your line is open.

Hi, guys. A question about some of your OEM partnerships. Can you tell us a little bit more about what Daimler was thinking with upsizing the number of battery packs, and is there a possibility of you guys getting a production contract on that?

Yes, I can tell you what I think Daimler thinks, but they would be obviously the best entity to comment on this officially. But they're just seeing al to of interest in the Smart EV. People really like it and cities around the world are clamoring for it. So that's why they have increased the sort of test fleet size and length. I think that's the best rationale there. As far as the larger production deal for smart battery packs, that's -- they are going through sort of a detailed RFQ preparation process right now.

We certainly think that we're in an excellent position to win such a contract. I don't want to be presumptuous, but certainly we're in an excellent position. Our pack is in the test fleet. So any other alternatives would have to --- well, I am not sure what testing process they'd have to go through, but they would certainly be behind whatever we've done. So it sort of stands to reason that if the test fleet is using our pack and charge that kind of gives us arguably pole position in a production situation for Smart.

Yes, for sure. And as far as the A-Class E-Cell, I think you had said something in your commentary about, you mentioned production. Can you just --- I missed, I didn't quite understand and I didn't realize that had been, that was production yet.

Sorry, could you repeat that question again?

Yes, I guess, Elon, you had said something about the A-Class you start delivering, I thought you said production battery packs. Is that a production contract or is it still development?

Just to clarify, we call it production battery packs because the development contract is over and now we're providing them battery packs for their test fleet, which will primarily be running in Europe.

Yes, called perhaps a small scale production versus large scale production. Its production by Daimler standards because you have to meet all of the very intense safety and reliability standards of Daimler, even for a test fleet. So, Daimler regards it as production because they hold us to the same standards they would hold a much larger production level.

That explains it. And then about the Toyota upsize that you said $69 million and I think before it had been $60 million. Is it just you're doing more for them now, it's a bigger contract than before?

No, let me just clarify. We signed an initial contract in Q3 for $9 million to provide them some initial prototypes and later on, we followed that up with the $60 million in Q4 for the development contract, which is broader in scope and needs completely the specifications that they want. So that's the combined $69 million.

Okay, and my final question is just on the Model S distribution. When can we hope to hear more about I guess your store rollout and what your plans are there?

Well, I think there was two parts to that. One is kind of the schedule of store rollouts and then the other is kind of the refinement of the whole purchasing and servicing process, the sales and services process for automotive. Because we're trying to innovate significantly on that dimension of the auto business, which is I think historically has been --- been rather poor. And a lot people would regard their car buying experiences as the worst retail experience they've had, not always, but a lot of people would say that and in fact have said that to me. So we really want to change that so that you really look forward to buying a car and that you actually would come into a Tesla store to sort of just browse around and kind of see what's happening even if you weren't specifically in the mood to buy a car right at that moment.

We want to be really inviting and essentially and our first core prototype of that experience is going to be the Santana Row store in a couple of months, but it is going to take us little bit of time to refine that process, refine the experience. So I think you'll really start to see that kind of develop over the course of this year. And as far as the rollout is concerned, right now we're making sure that we're identifying locations in key metros for Model S and beginning kind of the long lead process of lease negotiation and permitting and that kind of thing, but we're going to try to avoid applying a ton of capital to it too far in advance in the Model S sales. Because we really won't have any trouble selling the first --- the 2012 production of Model S.

In fact 2012 production of Model S will probably be sold before, I mean (inaudible) this prediction, but I think I'm reasonably safe in doing so that our production, our 2012 production of Model S will be sold out before 2012 starts. I think that is a very likely thing to occur. And so obviously there isn't a need to have a huge number of stores because, well, we've already sort of, we'll be selling cars for (inaudible) 2013. So really, you'll see the big ramp in store locations and whatnot for Model S in 2012 rather than 2011 in preparation for really driving sales in 2013. I think that's kind of a sensible strategy.

Thank you so much. That's all for me.

Thank you. Our next question is from Ben Kallo of Robert W. Baird. Your line is open.

Hi, thanks for taking my question. So could you guys talk about your strategy, if you have one at this point, about entering developing markets. So do you plan on developing market specific car malls or would you do this and would you do this alone or with a partner?

We definitely, by developing markets I think you may be thinking about the BRIC nations. We're trying, obviously not a developing market at this point. But are there particulars markets that you have in mind?

Yes, the BRIC markets.

Okay. I think really of those, China is by far and away the most significant given that new cars delivered in China are now greater than that in the US. That could shift as the US economy improves, but that certainly has been for last few quarters. So we're thinking entry into China would be in kind of the 2013 timeframe. As I mentioned just a moment ago, just in our existing markets we'll be --- we'll have covered all of the demand for 2012, or I should say we'll have demand in excess of the production of 2012 and probably have pre-sold 2012 by the end of 2011. So therefore getting to markets beyond that is kind of only important really in the 2013 timeframe so that's logically when we would go to China. We would go with a --- we would go direct. So it would be just Tesla and not a local partner.

So as you modify your models, if you need to, to enter those markets, do your costs increase? Or how do you view costs by entering those different markets?

We don't anticipate significant modifications apart from local language related stuff, and there is sort of small [modification] changes that need to take place. But just as Mercedes doesn't modify their S-class significantly by market or BMW doesn't modify their 5 or 7 Series, or Maserati doesn't really modify the Quattroporte then I think we would likewise not significantly modify the Model S. There may be, like, long-term, there maybe market-specific models that we bring out, but I don't anticipate that in the next few years.

Great. Thank you very much.

Thank you. I'm showing no further questions or comments at this time. I would like to turn the call over to Elon Musk for any closing remarks.

Thanks. I don't have any closing remarks. Good questions. I appreciate everyone's time on the call.

Thank you everyone. We look forward to seeing many of you on Wednesday, March 2 in San Francisco at Morgan Stanley's Technology Media and Telecom Conference where Deepak will be presenting. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect and have a wonderful day.