特斯拉 (TSLA) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Tesla Motors' First Quarter 2011 Earnings Call. (Operator Instructions). And, as a reminder, this conference call is being recorded. And now I'd like to turn the call over to Jeff Evanson, Vice President of Investor Relations. Please begin, sir.

Thank you, Tyrone, and thank you, all for joining us this afternoon. Welcome to Tesla Motors' Earnings Call for the first quarter of 2011. With me on the call today are Elon Musk, Chairman, Product Architect and CEO of Tesla Motors; and Deepak Ahuja, Tesla's Chief Financial Officer.

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 events or results could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent Form 10-K, filed on March 3rd of this year and also filed with the SEC.

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. We specifically disclaim any obligation to update these forward-looking statements.

And now, let me pass the call to Elon.

Hi. So we had another solid quarter of execution on all aspects of our business -- Roadster, Model S and power train. This was the highest-ever revenues and gross profit in Tesla's history, more than double that recorded in Q1 of last year.

We continue to add incredible talent at all levels of the Company. We had 130 new employees join the Company in the quarter, primarily in R&D and manufacturing.

The Roadster sales are going quite well, better than last -- Q1 last year and about the same as Q4. We now forecast that we will be sold out of Roadsters in North America by the end of this year, so if you want one, I recommend acting quickly.

As we prepare for the Model S, we launched an exciting new retail experience, with our store opening in Santana Row in San Jose in April. The goal here is really to engage and inform potential customers about electric vehicles in general and the advantages of Tesla, in particular and really to try to catch people before they have actually made a buying decision. So that's why it's in a high-end mall. It's -- they're thinking about -- they're in a buying mode, but they haven't decided what car to buy or even necessarily that they're buying an electric vehicle, but by having a very inviting, delightful store that draws people in, we can actually get to people before they've made their buying decision and really, when they do make a buying decision have a very, very pleasant experience, in contrast to how most cars are sold.

Going to the Model S it is on plan for first customer deliveries in mid-2012, with a slow ramp in production in the second half of 2012, reaching steady state in 2013. I shouldn't say steady state. It's somewhat mitigated by the fact that we certainly have the ability to go beyond the current projection of 20,000 units a year. So if demand is there, we're actually planning to be able to meet a higher demand if it is there.

The alpha build is proceeding well. We've completed the alpha build, which consists of build 15 vehicles and they're now going through intensive testing. So we're really testing every element of the vehicle, systems integration, performance, safety, cold weather performance. We've accumulated several thousand miles with pretty impressive results.

The car is -- I think it's great to drive. I try to drive it every week, if possible, the latest prototype.

And we're obviously rolling what we learn from the alpha into the beta design and we expect to have the first beta vehicle builds around the end of summer.

Our Fremont factory is going quite well. We saw high levels of activity in each element of the production process. The stamping line is now installed and we've been able to operate several of the stamping machines and we expect to be stamping parts from that line in the next, probably, four to six months.

The reservations are going very well, actually. As of the end of April we had over 4,600 reservations and the minimum reservation is $5,000. It would appear that the rate of reservations is actually accelerating.

We had a particularly noticeable increase after we showcased the all-aluminum body in white at the Detroit Auto Show. This shows that Tesla is -- just has designed the chassis and body from the ground up, internally, to fully optimize the vehicle around the electric power train. So that was clearly well received.

With our two main strategic relationships of Daimler and Toyota, Daimler increased their order by another 300 vehicles for the Smart to 2,100 vehicles. And the A-Class electric vehicle, Mercedes A-Class electric vehicle production is ramping up and I think the first Mercedes A-Classes are now on the road in Germany.

The Toyota RAV4 EV program also going very well. I think it's going to be a very compelling vehicle. Our goal at Tesla is to -- with RAV4 is to have it be the best acceleration of any vehicle with a Toyota nameplate, so excluding Lexus, but apart from Lexus vehicle, have the best acceleration and also have -- of course, to have the best range of any mass-market vehicle.

In terms of operational guidance, last quarter our primary objective was to execute the alpha build and -- but that we did and it's going, actually, I'd say, slightly better than expected. And, as I mentioned a moment ago, we remain on track for first deliveries of the Model S in the middle of next year.

This quarter our Model S activities will be a great deal of testing of the Alphas, preparation for the beta build, which will be done in our Fremont factory and in the spring -- finishing off the stamping press, bringing our plastics factory up and running and getting pain and assembly active.

It's all looking great. And that's about it for me.

Thank you, Elon. The major financial theme in Q1 was the very strong revenue and gross margin performance across all of our various activities. Total revenue in Q1 was $49 million, a 35% increase over Q4 and the highest quarterly revenue we've recorded.

Automotive sales, which include sales of Roadsters and power train components, increased sequentially by 15% to almost $34 million. We delivered 145 Roadsters in Q1, which is up strongly in comparison to the 126 deliveries in Q1 of last year and just about equal to the deliveries in Q4, despite the severe winter months in the quarter.

Average Roadster selling prices remained relatively constant from the prior quarter and the retail mix was slightly higher versus leasing, which caused Roadster-related revenue to increase modestly to just over $20 million.

Looking at the power train components of automotive sales, revenues were up almost 44% sequentially to $13 million in the quarter. This was due to record shipments of batteries and chargers for Daimler Smart EV and the first full quarter of shipments of batteries and chargers for Daimler A-Class EV.

Including the incremental order of 300 Smart EVs that Elon referred to, we'll continue to deliver components to both these Daimler programs through 2011.

Development services revenue more than doubled, sequentially to $15 million. This increase was primarily driven by the development program for Toyota RAV4 EV as we completed the initial deliverables and shipped several early samples and prototype vehicles. We expect to recognize about $45 million in additional development services revenue as we execute on our remaining deliverables under this program over the next three to four quarters.

As shared earlier, Toyota's intent is to enter into production with the RAV4 EV in 2012 and we're working jointly to finalize a separate agreement to supply the production components.

Total gross margin for the quarter was a record 37% as compared to 31% last quarter. The gross margin from our automotive sales was 20%, matching our record gross margin from the last quarter, due to a continued focus on both average selling prices and cost control.

Our operating expenses continued to reflect our efforts in developing the Model S and the buildout of our Company infrastructure. Total operating expenses were $65 million on a GAAP basis and $60 million on a non-GAAP basis. A reconciliation of the non-GAAP information is included in today's earnings release.

Non-GAAP operating expenses increased 8% sequentially, primarily due to greater R&D spending on the Model S, expenses related to the Model S alpha build and employee-related expenses as a result of a 12% sequential growth in headcount. Notably, non-GAAP SG&A spending rose only 6% sequentially, as a result of our continued focus on controlling costs, with most of this increase due to growth in our worldwide selling efforts.

Our higher operating expenses were more than offset by increased gross margin, thus narrowing the net loss for the quarter as compared to Q4. On a non-GAAP basis, net loss for the quarter was $42 million or $0.44 per share, with 95.2 million weighted average common shares outstanding. For comparison, our non-GAAP net loss was $44 million in Q4.

As we have previously indicated, we will continue to incur net losses for the next several quarters as we make significant investments in R&D and our corporate infrastructure to launch the Model S.

Turning now to the balance sheet, our total capital resources, including cash on hand, cash in the DOE dedicated account and the remaining undrawn DOE loan facility, were approximately $506 million. We currently anticipate that our available cash resources will be sufficient to fund our operations through the launch of the Model S, based on our present plans.

With the alpha build now completed, we are pleased with the pace of development of the Model S and, as we have previously discussed, the Company will evaluate its fund-raising needs from time to time and may opportunistically raise additional funds if market conditions are favorable.

Looking at cash flows, operating activities consumed $43 million in the quarter versus $34 million in the prior quarter. This was primarily due to an increase in accounts receivable from Daimler and Toyota, partially offset by a significant increase in reservations collected during the quarter. And just as a reminder, the majority of cash used in R&D activities is reimbursable under the DOE loan facility.

Finally, our inventory continued to grow to support our Roadster and power train sales. As previously indicated, such increases will continue for the next few quarters, prior to the planned end of Roadster glider production by the end of this year. This provides us with the ability to continue to sell any remaining Roadsters in 2012.

Capital expenditures were $20 million this quarter. We still expect to invest about $190 million to $215 million this year, primarily in tooling and manufacturing equipment required for the Model S program.

Therefore, we expect that our capital expenditures will increase significantly in the remaining quarters of this year. Note that the majority of these capital investments will be reimbursable under the terms of our DOE loan facility.

(technical difficulty)

Ladies and gentlemen, please stand by. Your conference will resume momentarily. Again, ladies and gentlemen, please stand by, your conference call will resume momentarily.

Sir, you're on the conference now.

Everyone, this is Jeff Evanson. I apologize for any technical difficulties. We're going to return to Deepak with his comments on capital expenditures. Go ahead, Deepak.

Okay. Capital expenditures were $20 million this quarter. I'm just going to continue from this point on. We still expect to invest about $190 million to $215 million this year, primarily in tooling and manufacturing equipment related to the Model S program.

Therefore, we expect that our capital expenditures will increase significantly in the remaining quarters of this year. Note that a majority of these capital investments will be reimbursable under the terms of the DOE loan.

Offsetting our cash usage in this quarter was the draw-down of $31 million from our DOE loan at interest rates close to 3%. Recall that the DOE loan funds half the eligible expenses up front and the remaining half on a deferred basis.

Next, I'd like to offer some thoughts on revenue guidance. We now project that full-year revenue will be between $170 million to $185 million, up from our previous guidance of $160 million to $175 million. Also, per our previous guidance, we anticipate that our R&D spending will continue to grow at a moderate pace and SG&A should grow slightly.

Regarding Model S reservations, the growth of almost 900 reservations in Q1 is a measure of the strong customer interest in this car, despite our limited marketing efforts. We had received slightly over 4,300 Model S reservations as of March 31 and have now surpassed 4,600. Again, we're not providing guidance on this metric, as we have not yet embarked on focused marketing activities for Model S sales.

I'd like to like to conclude by reinforcing that we continue to be excited about our long-term opportunities. This ends our prepared remarks and I'm going to turn it over to Jeff at this point for additional comments.

Thank you, Deepak. Before we begin the Q&A, we'd like to announce that we will be changing the format of our quarterly earnings releases, starting next quarter.

Our second quarter results, we expect, will be released in August. We hope everyone will find these changes save time.

The first change is that rather than issuing a press release with our quarterly results, we will simply issue a short press release announcing that our quarterly results are available on our website. These results will take the form of a quarterly shareholder letter. There will be no change to the level of disclosure of any of the financial tables, but simply where and how it is presented.

We expect to post this quarterly shareholder letter at ir.teslamotors.com under events and presentations, as well as in an 8-K filing with the SEC.

Second, rather than have Elon and Deepak read through their highlights of the quarter during the conference call, we will include that information in the quarterly shareholder letter. We will continue to host a conference call after the results have been posted to answer any questions from investors and analysts.

So to recap, going forward the financial release will be on our website in the form of a shareholder letter and Elon and Deepak's comments will be included in written form in that letter. Nothing else will change.

So with that, Tyrone, let's open the call for questions, please.

Thank you, sir. (Operator Instructions). Our first question is from Patrick Archambault of Goldman Sachs. Your line is open.

Hi, good afternoon. So, yes, I guess a couple of questions. Maybe first on just on just the marketing side. You've opened Santana Row and I believe there was some talk about also broadening out the approach to have maybe smaller selling points in public places like malls and stuff like that.

Can you tell us a little bit about like how your retailing strategy has evolved now that you are, obviously, ramping it up more aggressively? That would be my first question.

Sure. Well, the -- our goal at Tesla has always been to try to reinvent the sales and service process, because I think it's pretty bad in the conventional industry. In fact, most people would rate purchasing a car as their worst retail experience. Some regard it as equivalent to going to a dentist.

So we really want to be the polar opposite of that. We want it to be buying a car is something you look forward to, that it's a delightful experience. We wanted to have stores that you're drawn to come in, even if you don't really need to buy a car at the time.

And so we try -- we've been iterating, since opening our first store a few years ago, trying to refine this and Santana Row is basically the latest version of the store, if you will. It's Store Version 3 or something like that.

And I think we're really getting it pretty dialed in. We're seeing tremendous traffic at the stores, thousands of people coming in per week and while this is slightly helpful for Roadster, it's really helpful for Model S and for future vehicles that we bring out that are more affordable.

I'd really recommend going and visiting the Santana Row store to get a virtual sense of what I'm talking about, because it's hard to describe exactly, but easy to understand if you go there.

And, I guess, just building on that -- is your -- I believe the original plan was to not really do much traditional marketing at all. I guess, because with the volume you're targeting probably it might not have been necessary. Is that still the view or is that something that you might engage in to increase awareness on the Model S?

Well, I mean, clearly, since we've almost -- we're not far from having sold out all of next year's production of the Model S and it's not yet next year, there's clearly no need for advertising yet. At some point there may be a need for advertising, but that's only going to be when we're not production constrained. So we're largely going to focus our energies on ensuring that we're not production constrained.

And that's why we reconfigured the plant to make the Model S production, 20,000 units a year production on one shift instead of two shifts, so that we have the ability, potentially, to double the production fairly quickly, if need be.

But we really don't anticipate any short-to-medium-term need for advertising expenditures of any kind, really.

Okay. And just a couple of more housekeeping questions. I mean, Deepak, do you have -- can you give us the working capital number, that -- I know that -- you'll give it in the Q later, but do you have that handy? And the other thing I was looking for is can you give us the split in terms of the US versus international sales that you saw for the Roadster?

Let me answer the second question first. This was, in fact, our first quarter where we saw international sales to be slightly more than US sales in our history. So it's a good indication of the growth and presence of Tesla outside of the US, in Europe and in Asia. We really saw some good growth in Japan and Asian markets in Q1.

And regarding the working capital discussion, I think our cash flow statement and our usage of operating cash is the answer. I'm not exactly sure what further information you're looking for, Pat.

I'm -- yes, sorry, I'm just looking at it now. We can follow up online. I just saw a use in operating activity, so I just wondering what portion of that was, the 43 was a working capital use versus other operating uses of cash.

Yes, I think, as I mentioned in the call, the working capital usage would be from inventory, as well as accounts receivable and those are the primary drivers for the slight increase in our working capital this quarter compared to the previous one.

Okay. So just the delta in those two items will get us the number. Okay.

Actually, I forgot to mention regarding the Model S is our sales team is not selling Model S. They're selling Roadster, so the sales growth you've seen from Model S is not due to, say, us ramping up sales in Model S. In fact, there isn't even a Model S in the Santana Row store. I think that may not be obvious, based on my last comments.

Okay, terrific. Thanks a lot, guys.

Thanks, Pat.

Thank you.

Thank you. Our next question is from Dan Galves of Deutsche Bank. Your line is open, sir.

Okay, thanks. Good afternoon.

I just wanted to ask, interesting that the international sales were higher in the quarter than the US. I just wanted to ask about option content, uptake from consumers. It seems like it's stayed pretty steady with the Roadster, given steady average transaction prices. Are you seeing any differences in the amount of options people buy internationally versus US and does that provide any lessons for Model S for you?

And then also, just a follow up, is are you planning on offering a leasing program for the Model S and is there any update on the financing for that leasing program?

I think our options mix is pretty comparable between regions. I wouldn't say there's any significant statistical difference. They're pretty minor. And so, do you want to take the next one?

Yes, regarding providing a leasing option on the Model S, definitely that is in our plan and we've been working with a bank to partner with us regarding that and we'll announce the details when they're in place. But we definitely offer leasing as a financing option for our customers.

Yes. We're actually seeing quite strong interest from some of the major banks in working with us on a leasing program for the Model S with quite compelling numbers. It looks like there may be a bit of a bidding war there, which is good.

And we're also working with banks regionally in the sense -- obviously, we'll have a partner in Europe different from the US. So we will have regional concentrations there, too.

Yes and Europe has a -- obviously, it needs to adapt to the different environments and Europe has a very strong corporate leasing program. A lot of cars are actually company cars, effectively. So we're making sure that the Model S is well positioned to be in the company car programs.

Okay, excellent. Thanks for that. And just one other one. I just wanted to ask about performance in terms of quality, quality performance of the drive train on the Roadster. How have warranty trends been going as some of the vehicles probably get a little older. Just asking about that. Has it been to your expectations? Better? Worse?

Yes, Dan. We haven't seen any significant change in the trend of our warranty work on these cars. So there has been no significant change in our warranty reserves, as a result, this quarter. It's been pretty steady state.

Okay, great. And just -- did you want to follow up, Elon?

Sorry, none of our customers have actually -- no battery pack has yet reached end of life. And it's been now about three years. So even ones that are driven very heavily, that are approaching 100,000 miles.

Wow. Okay, excellent. Thanks for taking my call.

Thanks, Dan.

Thank you. Our next question is from Adam Jonas of Morgan Stanley. Your line is open.

Hey, Elon, Deepak, Jeff. How are you guys doing?

Hey, good. How are you?

Hi.

Good. Hi. I just want to drill in a bit more on the Model S. First, the reservations, of the 1,200 additional reservations you've had since the start of the year, any detail on geographically how those are spread? And also, how much has that acceleration in the reservations been influenced by the growth in the footprint, in particular the Santana Row, knowing, of course, you don't have a vehicle in the showroom, but just how much did that spur reservation activity, as well?

Well, it's difficult to say how much it spurred reservation activity. It's got to have some help, but it's not obvious how much. I think the biggest thing affecting Model S reservations for us is we're sort of getting close to deliveries and there's a lot more detail being released about the car and we're trying to be as open as possible with customers about the progress we make. We have journalist days to come in and take a look at the alpha cars and that's been very well received.

So I think it's more press than anything else that's a big driver. But certainly the stores are part of it.

As I say, though, the sales people in the stores are actually instructed to focus on Roadster, not on Model S, because we don't yet have the Model S vehicles in the stores to really actively sell.

Our Model S reservations right now are -- I don't have the exact numbers in front of me, but biased pretty strongly towards North America and at least sort of on the order of three-quarters North America, but part for that is because we're delivering North America first. So we're delivering North America in middle of next year, Europe end of next year and then our right-hand-drive vehicle, which is key for UK, is only in 2013.

So I think we'll start -- we'll see the mix of sales for Model S start to get roughly comparable between North America and Europe down the road, but that probably happens like next year or something like that.

Also, we haven't really kicked off accepting reservations on Model S.

Right. Unless you like dollars.

Right.

I mean, you actually, literally, have to do the reservation in dollars.

Right. As we get systematically -- well, we put in the processes to collect reservations systematically in Asia and most of Europe, we'll see a much bigger uptick there.

Yes.

There's a huge potential that we haven't really exploited.

We don't even have a local language site. So you've got to read it in English and pay in dollars. We're hoping to correct those issues.

And just to follow up, I mean, you mentioned you have some journalist days scheduled, but, specifically, when can we drive it? When can we expect the journalists to begin driving either the late alpha prototype or a beta version, realistically, and then when could you have us out there driving it ourselves?

Well, I think, particularly given that it's a car and safety is paramount, I think testing at the beta level is about the first time that we'd let non-Tesla personnel drive the car and we're expecting to have the first betas done at the end of summer, so that's about when you can expect non-Tesla people to be able to drive the car. Yes.

Okay, that's clear. Thank you for being so clear. A question on CapEx -- you're, obviously, running far below the run rate you're going to have to catch up to come anywhere near the $190 million to $215 million, but any way you could explain to us, of the remaining three quarters of this year how lumpy that CapEx will be? I mean, will it be a smooth roughly $60 million per quarter or is it going to be heavily, heavily weighted towards the end of the year? Any rough curve of that CapEx spend would be appreciated.

I think it'll be fairly smooth over the three quarters. CapEx payments, as you can imagine, tend to be large and lumpy. So even a week or two delay in a payment can significantly move the recognition of CapEx from one quarter to the other.

So I wouldn't be very firm or clear in my guidance on that issue, but we have very clear visibility of what our CapEx spending will be over the next few quarters --

Yes, I mean --

-- so that gives me comfort.

Yes, we have clear visibility on our CapEx expenditures, but not to the granularity of a quarter, because a few payments delayed one month to the next can make a pretty big difference. I mean, there's -- apart from a minor ones, all of our supplier deals are done. I mean, the Model S is almost 100% sourced at this point, so unless the suppliers break their deals or something, then it's -- these are pretty known quantities.

But the point is, the lower spending level isn't so much that you're getting more bang for the buck. It's just that lumpiness and the timing issue and you --?

Yes.

Okay.

Exactly.

That's clear. All right. Thanks very much.

I mean, I think we're getting pretty good bang for the buck to begin with, but --

Well, right, but the bar is raised for you.

True. True. Yes. It's worth knowing that -- based with the capital we have on hand and the DOE loan, we do have enough capital, based on our projections, to reach cash flow positive and profitability without ever raising another dollar.

I mean, but as we said in the last quarter, there's a decent chance we will raise a secondary for the Model X activity, the -- some additional potential headroom growth on the Model S production and then just, it's a good idea to have a larger rather than smaller cash cushion.

Well, and since you brought that up, one final question, then. I mean, you mentioned the word "secondary." Would your preferred -- I mean, obviously, leaving room to be opportunistic on whatever method of a capital raise you would do, is the preference more towards equity rather than debt or convert?

I think we'd probably err on the side of equity, since have a favorable effect with the DOE loan.

You're probably not going to get a better rate than that.

It's pretty nice.

Okay. All right. Thanks very much. Have a good evening.

Thanks. You, too.

Thank you. Our next question is from Himanshu Patel of JPMorgan. Your line is open.

Hi, good afternoon, guys.

Hey.

Hi.

A couple questions. Just on the issue of additional fund raising, Elon, maybe, or Deepak, can you talk a little bit about, just aside from market conditions, what are the kind of key governing factors that is going to help you guys decide how much to raise and when to raise? Is this really just about, primarily, the Model X and how fast you'd like to follow up with another car after the Model S? Or are there other things here that we're not thinking about?

And I wanted to supplement that question, could additional fund-raising needs also be satisfied with, maybe, having another strategic investor come into the Company, as opposed to a public market transaction?

I think, Himanshu, I'd like to just sort of step back and not answer this question to this level of detail. I think, as you can imagine, like any other company, we will evaluate our fund-raising needs from time to time and raise funds opportunistically when it makes sense and when the market conditions are right. So, I think it's probably best to leave it at that, regarding this question.

Yes, I mean, obviously, in compliance with financial regulations we have to be circumspect in discussing future financings.

Okay. The other big question I had is just since you've done your IPO the euro is up 20%, 25% and I'm just wondering what are kind of the implications of that, operationally? You mentioned how the European deliveries for the Model S are kind of end of '12, '13. Does it make sense to, potentially, accelerate some of that and maybe de-emphasize US deliveries initially?

And, I guess, in addition to that, at a minimum, should we think about the currency rate changes as at least being just a direct margin addition to the Company on the non-US sales or would you consider recalibrating your pricing expectations on European volumes as a result, as well?

Well, the reason for starting with US deliveries is the -- if we have to deal with any corrective actions on the cars, it's a lot easier to get our hands around it if they're in a more tightly contained geographic area and closer to our headquarters.

So, I think it's important for those first few months to be able to monitor very closely the status of the cars and make sure customers have a wonderful experience and, in a worst-case scenario where there is, potentially, a recall or something like that, we can do that quickly and take care of it with minimal disruption.

And then it's also important to note that a car which meets US regulations doesn't meet European regulations. So it's not like it's the same car in both cases. Unfortunately, they are slightly different and so we have to decide which car do we build first. So it's not the same car to either market. So, I think it's possible we could make a little more money if we shipped to Europe, maybe even probable, if we shipped to Europe initially, but I think the right decision in terms of long-term thinking is to build the cars initially in the US, make sure they're super good and then expand internationally.

And, I guess, the second question I had is, I think you guys had originally talked about US versus non-US volumes for the Model S eventually being kind of even. Just given what's happened --

To be precise, I said North American and Europe would be about even. But I think Asia would be at least as big as those. I would say something a third Asia, a third North America, a third Europe.

Right, okay. So, I mean, but just given what the dollar has done, obviously, that's financially very beneficial for your percent margin, because you're the only US car maker exporting from the US really. So, I guess the question, Elon, is do you kind of just keep your pricing for that vehicle where you expected it and let it all drop down to margin or is there a thought here that you could actually grab a lot more volume in the non-US markets, given what currency rates have done, by lowering the price points that you were previously thinking about?

Well, I think it's always -- it's always a bit dodgy to try to guess currency. Because what's true today could be different a year from now. And so I think the way -- we just want to proceed along the way of making sure we have the best product at the best price and with incredible value for money in each market. And if some customers are getting a better deal because their currency has shifted, relatively speaking, then good for them.

Has Toyota made any decisions on the final assembly site for the RAV4?

I don't want to speak on Toyota's behalf, so I would ask you to direct that question to Toyota. But certainly the power train is made by Tesla in California.

I think previously you've sort of indicated that Tesla is, I guess, agnostic is maybe the best adjective as to whether or not Toyota wants to do final assembly at Fremont or not. I mean, is that still pretty much your view?

Toyota is an important customer. We're a supplier to Toyota, so we want to do whatever makes Toyota happy in this regard. And where the power train is installed is entirely up to them.

Okay. Can you update us, lastly, on -- I know it's fairly early stages, but on the Model X? You've been talking a little bit more about it publicly and I think privately. Just -- have you put any more granularity behind your thoughts on timing, any design elements that have kind of been a little bit more solidified in your mind, price points, or is this still all at a fairly conceptual level?

We're actually hard at work on the Model X in the design studio, but I don't want to let the cat out of the bag on what it's going to be like. I mean, I think it's shaping up to be something pretty incredible, but I think we'll let the public be a judge when they see it at the end of -- we are planning to unveil it at the end of this year, as I've said previously.

And it will use the same basic power -- the same power train as the Model S. It's -- the Model X is built on the Model S platform, so it allows us to leverage that platform with a relatively small amount of incremental CapEx. And it just addresses a market that is the SUV and minivan.

So if you think of the -- with the Model S, we've tried to make a sedan that is so functional, has so much cargo capacity, can seat seven people, such that it addresses, obviously, the sedan market, but also addresses perhaps half of the people that would otherwise buy an SUV. With the Model X, we're trying to address the other half of the people that would buy an SUV, as well as people who would buy a minivan.

So, I'm pretty excited about it and I think it's going to be well received, but we'll see at the end of this year.

Okay, thank you.

Thank you.

Thank you. Our next question is from Andrea James of Dougherty. Your line is open.

Good afternoon.

Hi, Andrea.

Hey.

Piggybacking on the Model X question, do you think there'll be, I guess, some synergies from developing the RAV4? Do you think any of that and move that over, capture that for the Model X development?

There's a little bit. I wouldn't say there's a lot, but there's certainly a little bit that's in there and, of course, working with Toyota and meeting their extremely stringent standards, as with Daimler, is a learning experience for us.

So I think it's certainly helpful. There's a lot of mutual learning taking place with us and Toyota and so it's definitely a helpful relationship that has intangible benefits beyond the -- purely us being the power train supplier for the RAV4.

And as far as R&D long term and head count, can you just talk a little bit about how you're going to manage head count going into FY '12, what your expectations are, and then into FY '13?

Is that something we should --

I think that is something we haven't shared much of, in terms of guidance, Andrea. Obviously, at a high level, our focus this year is to continue to grow our manufacturing team and then bring in the work force to manufacture the car and a lot of the engineering people are already in place, since we've spent the time and the effort to develop the Model S. So, I'd just leave it at that.

Yes, I mean, it'll certainly be significant double-digit growth in employee count, but, yes, it's difficult to predict exactly what that number is going to be. Our hiring standards at Tesla are extremely. I mean, it's unequivocally the highest in the car business. And so, that tends to be the gating factor on hiring decisions, more than anything else.

Right. The other area where we will see some hiring towards the end of this year and next year is marketing and sales as we put in the infrastructure to sell 20,000 units of Model S globally.

Right, absolutely.

You had a great gross margin this quarter. Can you talk about the sustainability of that? And once the Model S is launched, I guess maybe some of your R&D, does that move up into cost of goods sold?

Yes, our gross margin on the automotive side of the business is fairly steady. The gross margin on the development services side is unpredictable because of timing differences and the recognition of revenue and cost. So, you would definitely see some variation in our gross margin overall, depending on the size and the accounting issues around development services.

Does that answer your question?

Yes.

On the Model S, we are expecting to have higher gross margins with the Model S than the Roadster, because we're insourcing much more of the Model S.

And one final one. What's your confidence level with your parts sourcing and your suppliers and delivery? I know it's just where you are right now, obviously you're confident you're going to get there, but just how do you feel about it now, and then, also, with the manufacturing equipment, are there any delays coming -- anything coming from Japan or --? Yes, so confidence level on suppliers and on manufacturing equipment?

So, again, just to elaborate on the last answer, we're pretty confident of the 25% gross margin number for Model S. That's a number that we expect to be measured by and that we're confident we'll hit.

As far as supplier disruptions, we haven't really seen any significant supplier disruptions. So things are proceeding pretty smoothly. There were a few hiccups here and there for a week or so, but it was less than our buffer inventory, so it didn't -- it really didn't make a difference.

And it hasn't affected us both the Roadster and Model S.

Right.

Thank you so much.

Thank you. (Operator Instructions). Our next question is from [Bryan Russell] of [Russell Group]. Your line is open.

Good afternoon.

Hi.

Hi, could you talk a little bit about the Daimler situation. You had an additional 300 Smart battery packs ordered, but I saw somewhere where they've decided to go with Bosch on the motors?

I think you read an article -- it's sort of an article that doesn't actually mean anything, because we don't supply the motors to Daimler. In the case of Toyota, we do.

For the RAV4 we provide the whole power train, motor, inverter, charger, transmission and all the interconnects and everything. So we do the whole power train in the case of the RAV4.

In the case of the Smart and the Mercedes A-Class, we provide the battery pack and charger and that's always how it's been.

They said they were going to use, even for their battery packs on the production Smarts. Is that correct or have you heard anything on that?

Well, that also has been their or their stated plan for quite a long time. However, they also -- what has happened, at least historically, is that Evonik has not been able to provide a product that's as compelling as Tesla's and so then Daimler has at every stage of the process chosen to continue with Tesla. That may change in the future, of course, but that's the history to date.

And would I be right in assuming -- you just kind of upped the revenue projection by about $10 million. About half of that is the additional 300 Smart battery pack chargers?

That's correct.

And then where do you see the rest of it? Is it going to be in development services?

We just have seen better visibility on all aspects of our business and it could be from either or and we just feel more comfortable at this point, given that we are in May here, with that $10 million increase in revenue guidance.

Okay, thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call over to management for any closing remarks.

Okay, thank you, Tyrone. We, again, appreciate all of you taking the time to join us today and we look forward to seeing many of you during our travels. We're here in Palo Alto or at our first annual shareholder meeting on Wednesday, June 1st, from 9 a.m. to 10 a.m. The meeting will be held at the Network Meeting Center at TechMart in Santa Clara, California.

Thank you, everyone, and have a great day.

All right. Thanks.

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.