特斯拉 (TSLA) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Tesla Motors second quarter 2011 financial results Q&A conference 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 call is being recorded.

And now I'll turn the call over to Jeff Evanson. Please begin.

Thank you, Tyrone, and good afternoon everyone. Welcome to Tesla Motors second quarter 2011 financial results and Q&A session. I'm joined here today by Elon Musk, Chairman, Chief Product Architect and CEO, and Deepak Ahuja, our Chief Financial Officer.

00 p.m. Pacific time today. The shareholder letter and the Q2 financial results and the webcast of this Q&A session are all available at the Company's investor relations website at ir.teslamotors.com.

We've made some effort in this letter to answer some of your questions up front, but starting our new practice this quarter, this call will consist of some brief remarks by Elon followed by time for your questions and our answers. We will conduct the Q&A live, so please log in now if you wish to ask a question by pressing star then one.

During the course of this call we may discuss our business outlook and make other forward-looking statements. Such statements are only predictions based on management's current expectations. Actual events or results could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the risk factors section of our most recent Form S-1 registration statement filed on June 2, 2011 with the FCC.

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.

Thanks, Jeff. So if people have been listening in on the calls on prior quarters, you know that we've usually been pretty circumspect in our comment about the quarter results. But in this case I think I just want to be accurate. This was the best quarter in Tesla's history. It was just phenomenal across the board, and we saw a tremendous amount for Roadster, for Model S, well over 5,000 deposits, so almost all that -- all of next year's production of Model S. And we've obviously signed the $100 million deal with Toyota. We're actually in discussions with them for a deal that an order of magnitude larger than that.

The retail strategy is going gangbusters. Two new stores that have our new approach to doing a store head have had 200,000 visitors since opening. It's just been tremendous across the board and with great momentum going into the third quarter so super excited. We tried to express as much of this as possible in the letter ahead of time to give people the maximum amount of time to ask questions, so with that let's go to questions.

Thank you, ladies and gentlemen. (Operator Instructions) Our first question is from Himanshu Patel of JPMorgan. Your line is open.

A couple questions. I noticed the margins on the development services business had gotten down to 52%. It looks like that's about maybe 20 points or so below where it was in the recent quarter, and then margins on the automotive revenue were actually a few points higher than where they were. Can you just give a little bit of color behind how we should think about those two forecasts going forward?

Sure, Himanshu. The margin on our development services contract will fluctuate from quarter to quarter because there is a difference in the revenue recognition which is associated with the milestones that we deliver on that program versus the cost that we incur. This is very consistent with what we have been seeing in the last several quarters about our development services margin.

I think the automotive margin is a much better measure of our operational capabilities. As you correctly pointed out, sequentially our automotive margin has improved from 20% in Q1 to 22% as we have continued to improve the [ASEs] on the Roadster and our ongoing cost reductions that we've achieved.

Yeah, which -- and it certainly bodes very well for the Model S, our target of at least 25% margin for the Model S.

Right.

Okay. And then, Elon, I guess a bigger question on Toyota. You alluded to some additional business beyond the $100 million contract with Toyota. I'm curious do you have a view at this stage on how Toyota is internally viewing just the broader EV portfolio or do they have parallel development efforts internally with their own engineers right now for electric vehicles that are I guess in some ways sort of competing with what you guys are doing or do you sense that they're kind of gravitating more towards using someone like a Tesla more exclusively?

It's difficult to answer that question with a high degree of accuracy, but certainly if one looks at the objective actions they've taken such as the recent $100 million deal and the fact that we're in discussions for a deal that is an order of magnitude higher than that. You can never foretell exactly what will happen there, but certainly if I was to judge from (inaudible) behavior, it's extremely positive. So I would expect a company like Toyota, which is obviously a gigantic one, one of the largest companies in the world, to have multiple irons in the fire, but I think it can also be said that there's no doubt that we're one of the significant irons in that fire.

Okay. And then lastly on the revenue guidance, you guys gave a midpoint of $185 million, and it sort of implies about $78 million for the second half, which on a quarterly basis is about $40 million or so per quarter. That's a bit of a slowdown from the kind of I guess $50 million and $60 million rate you did in the first two quarters. So can you shed some color on what drives that sequential decline in revenue?

We believe in being conservative.

Okay, great. Thank you.

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

Sure. Did you want to elaborate on that last question a little bit? It sounded like you did. Maybe not.

I'd like to elaborate on it. I'm being cautioned that I shouldn't. Let's say predictions for the remainder of the year are conservative. I'm optimistic that we will exceed them.

Okay. Thank you. I have three questions. First, regarding the retail store concept, are you seeing a correlation between foot traffic and reservations? And I guess to the extent that you can measure it, how much of the acceleration and reservations has to do with the store openings and how much of it has to do with the simple fact that we're getting closer to 2012?

It's pretty hard to separate those two things, but I can say they're both having a significant effect. And we are seeing proportionately higher reservations from the stores with the greater foot traffic so -- but like I said, it's difficult to separate those two things. Yeah, I think we'll probably have a better sense of that in the coming months, but I can't say we have a firm understanding of what -- how exactly it would break down. It's all going in the right direction.

What we are seeing is a pretty interesting dynamic. We opened our Santana store first. We saw increased foot traffic there. Obviously we are better known in California, and that -- we could see that coming through in higher reservations for the Model S and orders for the Roadster. But what was interesting is that our Menlo Park store which is not very far also saw an uptick in Roadster sales and reservations, so there's a pretty dynamic effect. And in Denver where we opened our second store, a lot of people really didn't know what Tesla is, and opening that store has created a huge sense of awareness.

Yeah, right.

And initially we didn't see the momentum of reservations increasing, but lately in the last few weeks we've certainly seen a significant increase in reservations and momentum. So it's a combination of awareness and --

Yeah. Deepak's actually made a good point there. A pretty -- if you look at our Roadster sales, we've got about almost half of those sales occurring outside of the US. And US sales I think were maybe 30%, 40%, maybe 30% in California or something like that. But if you look at our sort of California Roadster sales I think we're maybe somewhere around 15% of the total sales in California. But if you look at our Model S reservations, it's actually closer to 40% or 45% of our Model S reservations are in California which means that there's a great deal of untapped demand for Model S outside of California that I think is at least proportionate to our Roadster sales.

So we certainly are highly optimistic about Model S demand growth in the future, and we really particularly outside of the US have de-emphasized the Model S because the Model S will first be delivered in the US and we want to focus on getting into Roadster sales internationally so there's not too, too big of a gap there between Roadster and Model S.

But as we turn our focus to Model S internationally, I really think we'll see very strong demand. It's maybe worth just touching a bit more on Roadster, as well, because I've seen in the press some misinterpretation of the situation with Roadster with some people in the press thinking that we've sort of stopped production or something. The comments actually made a couple months ago was that we'd be -- we'd soon have sold out of Roadsters, meaning the orders for Roadsters, there would be no more order slots left.

Our delivery takes place some time after we do a sale because we have a long waiting list. So we're actually delivering Roadsters in the US until January, but we've sold out of all custom orders. As I predicted, we've sold out of all custom orders for the Roadsters. There are some spec cars available, a small number of spec cars available, but otherwise we're sold out. So you can't actually buy a custom ordered Roadster in the US anymore, and there are only a few -- like I said, a few spec models available. So if somebody is interested in buying a Roadster they'd best act quickly.

Now, we do have some inventory reserved for Asia and Europe and will continue deliveries in Asia and Europe until at least the third quarter of next year because Model S, (inaudible) towards the end of next year, so we're clarifying that because the media got that wrong.

Okay. Thank you. Just two more. You shared a table in the shareholder newsletter that had Model S development, I guess a timeline. There's a lot of information packed into this table, but I was wondering if you kind of help me to understand how we should look at it. What are you trying to convey with the information, and just explain some concepts like what does it mean that the Beta is in the process? The Beta process and prototype/production phase in Q3/Q4 '11. Just kind of trying to understand what -- you know, how we should look at that table.

Sure. So essentially what we're saying is that we're done with the Alpha phase of the vehicle in all respects and we're now well into the Beta phase. I should mention that we're planning on having a major customer event on October 1st at our Fremont factory that will allow customers to test-drive the Beta vehicles and also have a tour of our factory. We're sending out invitations pretty soon, but that's going to be a huge customer event and people will have an opportunity to drive a car that is very, very close to a production design, so it's 99% production design. And so that will mark the first Beta vehicles that can be driven.

And our definition of Beta is basically which is production design but there are still a series of small issues to be worked out just as you would imagine like Beta software or something like that. And then a relief candidate is something where we think the car is ready to go to customers but we're just checking that it is. We're just validating that sort of final production process.

So obviously we're very confident about the progress of the Model S in terms of what the Beta vehicle is going to be like to drive. We're also very confident about the progress in the factory, and this is why it's -- we're going to have this open house effectively on October 1st for all of our customers. We're going to bring people in from all around the world and it's going to be an awesome event, so it's going to be a lot of fun if anybody wants to come.

Okay. And then finally this is regarding -- or was there something else?

No, go ahead.

Regarding the recently signed RAV4 contract, I guess what does Tesla need to do to meet Toyota's specifications and should we model out some investment there, and do you invest in permanent structures in the factory?

Sorry, what was the first part of your question again?

Regarding the RAV4 contract, what sort of investments do you need to make to meet their specifications and do you -- I mean, does it become a permanent part of the factory or what happens there?

There is a lot of synergy in the powertrain that we will provide to Toyota and the Model S, so this is a great way for us to really make the most efficient use of our capital resources by developing a common factory and common processes. Of course, there are certain tools that will be very unique for the shape and the size of the battery pack as an example that we'll have in the RAV4, but it's not as if we are establishing a separate factory. It's going to be common processes overall.

Yeah, relatively small expenses that haven't already been recognized essentially, and it also gives us a great transition for the Roadster production workforce to work on the RAV4 vehicles as an interim measure before the full Model S production starts.

Thank you so much.

Thanks.

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

Thank you very much. Actually just wanted to build on that last question. It does seem from the press release that the testing on the Alpha really kind of came fairly close to a lot of the simulation work you did, and based on the fact that you're on track for all your major timetables here, can you just maybe just dive in a little bit and tell us were there some areas that were different where you had to adopt a little bit some challenges that are still being kind of ironed out in the Beta phase? Just wanted to get a little bit more color on how that transition is going.

Sure. Well, in the Alpha phase of any project you discover quite a lot. That's why you have an Alpha phase. It's nothing that's really hindered us from moving to the Beta phase as planned. So there were a lot of problems and we solved a lot of problems, and one of the toughest challenges is achieving a five-star crash rating across the board by 2012 standards. Now, to be clear, there is no car currently in existence that has five-star in every category by 2012 standards. This is -- these standards have risen quite a bit.

But that's our target, and we got very close in the Alpha. And I think we're going to get there in either the early Beta phase or at minimum by the sort of mid to late Beta phase. So that's -- and the challenge there is you want to make a car that's extraordinarily safe. I mean, our goal is to make this the safest car in the world bar none. Not the safest electric car, the safest car, and I think we'll get there.

And then the challenge is to get there without adding a ton of weight, and the only way you can do that is by having a very sophisticated aluminum body and a chassis which is what we've got and using the most advanced techniques from the automotive business. Also applying a few ideas from the rocket business. Aerodynamics was extremely important, and I think we've really got something that's spectacular.

And we'll go into detail on that on the -- on October 1st when we have the customer event. I'm actually planning on doing quite a detailed presentation on crash safety just to educate people exactly what goes into crash safety, how do you simulate it, how do you solve the problem, what makes something good or bad, because I want to actually really have people come away from that really understanding and knowing what makes a car safe rather than just sort of typical marketing nonsense.

Gotcha. And I take it like the biggest piece there is the side impact requirement, right?

Well, there's the side -- there's multiple types of side impact, there's multiple types of front impact, and then there's also rear impact and roof crash.

And are those all new? I thought it was the side impact that was new, but I might be simplifying things.

Oh, in terms of what's new by 2012 standards?

Yes.

By 2012 standards, the roof crash requirements has increased dramatically and side impact, so it's -- those are the two biggest changes.

Gotcha. Okay. And actually just on that note, one of the things that's very differentiated is your choice of an aluminum body. I see you had some discussion of the Schuler press that you guys have installed there. Clearly I think you guys would be the only aluminum-based body in the US if I'm correct. How is that process going? What are some of the challenges with that?

You're correct. We would be the only aluminum car in the country, made in the United States. Of course, there are many other aluminum structures made in the United States including planes and rockets, and you're familiar with the rocket side of things. We've really brought in expertise from all around the world on shaping of aluminum, and I think we're going to -- I feel reasonably confident in saying that this is going to be the most advanced body and chassis in the world and I'd stack it up against anything.

And as far as the -- I mean, it is more challenging to shape and bond aluminum than steel, but we've really gone through most of those issues in the Alpha phase. And then with the Beta vehicles we're getting to very tight tolerances. I think it's very important to build a car to very precise measurements, to have good gas and tight build clearances, and we're really building it to a very exacting standard. The challenge I have for the manufacturing team is like I want to use this car as a yardstick. I mean, that's how accurate it needs to be, but I don't see any issues in achieving that goal.

Great. And one last quick one if I may, maybe more for Deepak. The CapEx, increased CapEx guidance, is that more of a timing issue? Is that kind of pulling forward money you were expecting to spend anyways or is that just kind of an increase in the overall amount of investment required to execute?

It's a mixture of several items. Timing is an aspect of it, but it's also making some additional strategic investments on the Model S to improve cost and quality in some of our shops. It also includes some investments for Model X since we are beginning to kick that off, and some additional strategic work that we are doing.

Yeah, and I think your impression is (inaudible), but the plan is to have an unveiling of the Model X prototype at the end of this year, so probably in the mid December timeframe we'll get a real good sense for that and it's going to be a super exciting vehicle.

I should mention that thus far we've been very open about the projects that we've been working on such as the Model S, Model X, the Roadster, and the powertrain deals and so on. We're going to transition to something where not every project is talked about, so there are going to be some projects that for proprietary reasons we want to keep silent about until the timing is right to unveil them. And so there are a couple of those going on that I think are going to be very exciting when people learn about them, but we don't want to talk about them publicly.

Great. Thank you very much.

Thank you, Pat.

Thank you. Our next question is from Dan Galves of Deutsch Bank. Your line is open.

So I wanted to ask a little bit about the Model X. Thanks for the detail on startup production of that vehicle and volumes. Could you give us a sense of in terms of the overall product development process for that vehicle versus the Model S, how long would you say -- or I guess considering that you're leveraging the Model S platform, is the product development process much quicker on the X than the S has been?

Yeah, definitely. It's much lower CapEx and a much quicker development process because we're really keeping the fundamental powertrain and the chassis, the electronic components, the 17-inch touch screen instrument panel, these things are all common between the cars and it's kind of just the -- sort of the upper body that changes. I don't want to say too much about the Model X because I want to really leave a little bit for the big unveil in December. So there are some pretty exciting things about the Model X that I think are going to be super cool, but I don't want to say too much at this point.

Okay. But would you say these additional top hats are -- is it half the time to develop them from kind of, I don't know what you guys call it, maybe design frieze to start of production or is it even faster than that?

First approximation it's probably about half, yeah. It's maybe a third of the CapEx and half the time.

A third of the CapEx, half the time. Okay. Thanks for that. And then in talking about R&D and CapEx, just wondering if you expect to have a decline in R&D spending as you get up to the Model S launch or will that stay relatively flat versus 2011 levels considering that you seem to be in the midst of other development processes as well? So kind of the cadence of R&D and CapEx, should that decline in 2012 versus 2011?

The bigger thing is by quarter, as well, and I think certainly at this point we have fairly significant one-time expenses related to the Model S as we are completing the engineering design and testing work with our suppliers, and we're building the prototypes of the Beta as we speak. And in addition we have almost 150 people in our manufacturing facility which are continuing to show up in R&D expenses, and they will move up into cost of goods sold once we go into the production phase of Model S. So there will be some substantial reductions there on Model S related R&D in our manufacturing facility.

The things that would come up is as we go into 2012 is Model X and some of the other projects that we are working on. But overall, yeah, there will be some reductions.

Okay, great. And just I wanted to ask about the cadence of Model S production a bit. I know you've announced that early production will be kind of the highest end models. Do you have any sense for how long that might last? It could definitely impact average transaction prices over time. Just of the 5,000 vehicles you expect to produce in 2012, will those all be the highest end models?

Well, we plan to start with as we have announced the 300-mile-range Model S, and it will be the signature series initially which will be fully optioned, so certainly they'll have higher ASEs but I'm not -- I guess you had a couple of different pieces in your question. Perhaps you can ask, Dan, what was your first part again on that?

I guess maybe how long you expect that to last. Just trying to get a sense of whether it would be the first couple quarters of production that will be the 300-mile vehicle or is that more like the first 500 to 1,000?

Well, we've indicated that before year-end we would have the 230-mile in 2012. We will have the 230-mile range car out.

Well, the signature series which is the first 1,000 will be the 300-mile-range only because it's kind of like the fully loaded vehicle. And then thereafter if you want the option of the 300 or the 230-mile, and then at the very end of next year, sort of probably in December is when the one will start. Next year some of the 160-mile (inaudible) predict in advance how many people are going to pick 300 versus 230, but it's -- it could be half and half. It could be one-third/two-thirds. The (inaudible) in advance, but we don't have an indication of that yet because we've not insisted that people pick one or the other yet.

Right.

Okay. That's very helpful. Maybe just one more just looking at you're probably getting a pretty good sense of how your suppliers are performing as the Beta phase comes to a start. Are you having any issues with suppliers or are you more worried about your suppliers or your own capability in terms of making sure to be on time with the Model S?

Well, I mean so far it looks like everything is on track, so we're not aware of any supplier or internal issue that would prevent deliveries in the middle of next year. And we're certainly staying on top of that, making sure that we have a strong supply, a quality engineering team that's out there verifying the facts on the ground with suppliers, not just sort of taking their word for it. And then we're making sure that internally our manufacturing ability is ready, and ready before it needs to be ready, and so far it's looking good. Don't know of anything that's going to cause an issue.

That sounds great. Thanks a lot.

Thanks, Dan.

Thank you. Our next question is from Carter Driscoll of Capstone Investments. Your line is open.

My question really stems around obviously the Model S. You've had good growth in the reservations ramping nicely, and obviously given your stated intentions for your second half production models in 2012, you're fully booked for that production level. Help me understand what the limiting factors are. Let's say you had a continued ramp between now and your on-target production in the second of 2012, and let's say you reached, I don't know, say 15,000 reservations. Why wouldn't you produce those 15,000 in the second half of the year? Maybe you could help me and discuss maybe some of those limiting factors, early production run, trying to figure the bugs, things of that nature.

Well, the nature of a manufacturing line is it's sort of like spinning up a wheel. You've got to -- you can't just sort of go from nothing to 2,000 vehicles a month instantly because if you did that there would be a lot of issues you encounter. You really have to kind of start the line with ten vehicles a week and then go to 20 and then 30 and 40 and eventually get up to the rate that -- where the production line can manufacture the vehicle with very high quality at the rate that you need it. And if you just sort of went full blast, you wouldn't be able to keep the quality where it needs to be.

Now, we have set things up such that -- and this is where part of the increased CapEx comes from -- such that we can do 20,000 units on a single shift. Previously we had talked about doing 20,000 units on a double shift, and we thought to allow for a better ability to capture outside potential, let's spend a bit more money and be able to do that on a single shift. So yeah, I mean sort of in the 2013 timeframe, if the demand is there, we can certainly do more than 20,000 vehicles and like I said we'll work hard to drive that demand to the best possible level.

And then just my next question really circles around obviously some of the strategic initiatives that you want to keep under wraps for now. Obviously you had the secondary raise, and I would imagine most of that's for the Model X, the RAV4 and the Model S. Do you envision that you might need for some of these initiatives additional capital or do you feel comfortable with what you have on the books?

At this point we're not -- we don't plan any -- don't anticipate any need for a secondary between now and the start of Model S production, and so we'll have to see how things develop. I mean, if there is -- if we see a significant opportunity and it seems as though it's worth the dilution to pursue that opportunity then we would go to market, but we don't currently see the need to do that.

It's way too early to tell until we have fully evaluated the projects and looked at the full-scale implementation and make sure these projects make financial sense, and we won't obviously commit and go to that extent of raising external funding.

Does that answer your question?

Yes. No, thank you very much.

Thank you. Our next question is from Erik Olbeter of Pacific Crest. Your line is open.

Hi, this is Eric Leeper in for Erik Olbeter today. My question was on SG&A. Obviously good cost control over the last several quarters. I was wondering if you could fill us in on your expectations for that going forward and kind of how it relates to opening new stores and bringing on new staff as you ramp up production here.

Sure. Yeah, you're absolutely right, Eric, that as we do add more stores in significant numbers next year and in 2013, we will see a corresponding increase in SG&A. It was good to see that despite adding two stores this quarter our SG&A was relatively flat. In all though I am pretty sure given our overall approach, and not spending any money on advertising as an example, we would see that our SG&A as a percentage of revenue would be at industry -- better than industry benchmarks or at industry benchmarks.

Okay. That's helpful. And I was wondering if you could just talk about the -- sorry?

Oh, go ahead.

I was wondering if you could just talk about the competitive environment. You've had specifically the Fisker being delivered very recently. I was wondering if you could talk about sort of how you view the market now that you have a luxury non-gasoline vehicle in the market.

We've not seen any impact on our sales at all of the Fisker, so I mean quite frankly I'm a little concerned about -- that people, if something were to go wrong with Fisker either on their demand or production side, that people would infer that there is a similar issue with Tesla. I just don't think there's a good correlation.

Great. Thank you.

Thank you. Our next question is from Ravi Shanker of Morgan Stanley. Your line is open.

I'm very interested in this customer event that you're having for the Model S on October 1st. I think this is the first time you've spoken of that. Can you give us some more detail here? Are these customers going to be existing Roadster customers, anyone who's placed an order for the Model S, and are they actually going to get to drive the car?

Yes. So this is actually -- you have to have placed a reservation for the Model S. And it's -- we're trying to think of what are the things that we can do to reward customer loyalty and have them feel really confident about the vehicle that they put down a deposit for. And I'm a big believer that the best sales people for a product are existing customers, and so we really want to have people come to this event, drive -- we won't have enough time for everybody, for them to drive the cars themselves, but we're going to drive them in the cars on the test track at -- that we have at Fremont, the (inaudible) facility.

So that's -- so they'll get a real feeling for the acceleration and handling, the fit and finish, just the -- I think people are really going to be impressed by that, and that's why we're doing it. And then as well as a detailed factory tour to see all the progress we've made towards production there. And of course as someone who's an analyst, I mean you're welcome to come at any point and see what progress has been made, but -- and you're also welcome to come to this event.

Yeah, I wouldn't mind scoring one of those ride and drives myself. And related to that, when do you think the automotive media gets to ride or drive in the car then?

I think we'll have some of the automotive media do that on October 1st. Now, it's not a full production so we're to be a little cautious that people aren't officially evaluating -- people will need to be evaluating a Beta product as a Beta product, but we expect to have some fairly significant automotive press activity at the event.

And since you said fit and finish, I'm assuming that these would be -- these prototypes would be much, much farther along than the current Alphas and even the Betas that we're seeing currently going -- undergoing testing.

Yes.

Just to clarify what we are testing right now are the Alphas that were fully built as our schedule said by Q2, and these will be the first of the Beta builds that we will do.

Yeah. The Alphas you're testing sort of fundamental functionality as opposed to tolerances of the interior, leather and metal trim and that kind of thing.

And just a final point on this. It seems like there's been a bit of a step up in the profile of the Model S lately. I've seen them on the front page of a couple of automotive websites and magazines, just the video that you guys have been putting out. Also I believe a couple of people have sighted Model S prototypes at some malls around the country and now you're having this event. It seems like a pretty significant step up when you're probably, what, nine months at least out from the launch of the vehicle. Is this something you had planned all along or is this potentially telegraphing that you have room to bring the launch schedule up a little bit?

We're keeping our prediction for release in the middle of next year, and that's -- we feel confident of being able to meet that goal. But as far as the Model S attention, I mean certainly within the US since we have basically sold out of custom-ordered Roadsters and only have a few Roadsters in the showrooms to sell, it makes sense for us to shift our focus domestically to the Model S, and that's what we've been doing and that's going to increase with each passing month. But this is for the US, and then internationally we'll start shifting that focus more in the middle of next year.

Great. Thanks very much.

Thank you.

Thank you. Our next question is from [John Laconna] of [Lou Phoenix]. Your line is open.

Hi. This question is for Elon. Elon, first, thank you for being a visionary at this time in our nation's history. I think the country could certainly use more people like you trying to challenge limits so thanks for that. I just was curious, a couple quick questions. What do you think is one of the most important lessons you took from selling the Roadster that makes you confident that you can actually meet or possibly exceed 20,000 sales for the S next year?

Well, I think there's certainly -- the lessons from the Roadster are more in terms of an understanding of what it takes to produce a compelling electric car. And if you think of -- the way I think of the Roadster model is kind of like the -- if the Roadster is kind of like the Apple I and the Model S is a bit like sort of the Apple II, and there's -- it makes a huge difference to lower the price.

Basically car sales increase exponentially as you lower the price, so having a vehicle that has a starting price half that of the Roadster is a huge increase in the number of people that can afford to buy the car, and then you consider the increased functionality of the vehicle being five adults and two kids, up to seven people, more cargo space than any other sedan and just great handling. We're aiming to make it the safest car in the world. I mean, these are all things that really amplify demand, so I think we'll be -- I think 20,000 units a years is a very doable number for the Model S.

The Roadster has also enabled us to fine tune our retail strategy, understand how we can sell electric cars actively, and we have sold Roadsters in over 30 countries globally. Small numbers overall but it's really taught us how to sell cars globally and it set the stage for us to sell 20,000 Model S's for our projection globally.

And I guess to that point though, because I guess what we're seeing in the industry is there's still a huge need for education. And I mean it's great that the retail stores, hopefully that does help in that regard and your being I guess one of the front runners in kind of implementing that sort of strategy, which is great, but there still is a lot of consumers that aren't willing to embrace this. There's still so much of a disconnect between the OEMs and like yourself and the utility companies, and I guess my question is how do we bridge that gap? How does education get down to the consumer level to have the confidence to completely forget about any sort of anxiety related to miles per charge?

I think we're making good strides in the -- with the range concern with the Model S, having the option to have up to a 300-mile range of vehicle, sort of a roughly 45-minute charge time from a (inaudible) charge, and then enabling the pack to be swapped out in under a minute, and then that's not bad for going to essentially a second generation of vehicles.

And I've said for many years now that in order to make some things -- in order to really to achieve the mass market, to have something be compelling at the mass market level for a product, you really need to optimize the design and achieve economies of scale. And I think generally you need to do about three significant iterations on a new technology at least, and that's why our strategy has been to start off with the Roadster at low volumes with a relatively higher price, then go to the Model S, mid volumes, mid price, and then our third generation vehicle would be high volumes at a low price, or a lower price.

Well, I guess my last question would be I was just curious, you briefly touched on competition and I think Fisker as well as probably anyone else that has problems in the industry gives a growing industry a bad name. But I was getting -- I guess we don't have a national standard with charging, and I was wondering if you could just give us your thoughts on what you see -- we need to see from the government to have a national standard put in place so maybe that actually welcomes consumers about not worrying about the next -- the new technology coming so quickly.

Sure. Well, there is a SAE charging standard which is not bad. I mean, it could use some refinement, and there are sort of additional SAE charging standards that are coming out. But I think it's actually going to be okay. I think the issue is really going to be one of production limitations rather than demand limitations, and I think -- I mean, I think -- I hope this is true but I think it's true is that Tesla will always be, at least for the next several years, production limited.

I mean, right now if you put down a deposit for a Model S, you've got to wait 18 months and yet people are still putting down deposits, a minimum of $5,000. So until -- at least being from Tesla's standpoint, until we start seeing deposits, that wait time go from 18 months to let's say three months or six months, then really our focus needs to be on ramping up production as fast as possible.

Thank you very much.

Thanks, John.

Looking forward to speaking to you guys soon.

All right.

Tyrone, we have time for one more quick question.

Thank you. Our next question is from William Peck. Your line is open.

I think my question has been answered for the most part, Mr. Musk. I was curious about previous factory output for the NUMMI auto factory, I think up to 500,000 cars a year. With Model S looking at 20,000 and Model X at up to 15,000 a year, I was just curious about any plans or vision for maxing out your capacity in the future, maybe in conjunction with this recent contract to settle a set point for your automation.

Well, I think we certainly hope at some point in the future to use the full capacity of the NUMMI factory at a half million vehicles a year, and we're going to work towards that as fast as we reasonably can but without getting too far ahead of ourselves. We don't want to bite off more than we can chew at any given point in time, and so we're trying to sort of make the sense of all things.

But we want to come out with a new product every year, and so that will be Model S obviously next year, Model X the year thereafter, and another vehicle the year after that, another vehicle the year after that. And try to get to that full capacity as soon as we reasonably can, but making intelligent use of the capital we have on hand. So we'd like to be able to use the free cash flow from existing sales of say the Model S and Model X to sort of then leap up to the next level without having to go through a significant dilutive event. That's our strategy and sort of what I think makes sense for us to do. That's what we're going to try to execute.

Thank you very much for your time.

Thank you. Tyrone, I've got some quick closing remarks. So thank you everyone for joining us today. We look forward to seeing many of you even as soon as next week. Next Monday we'll be at Pacific Crest's Emerging Technology Summit in Vale or on Wednesday we'll be at JPMorgan's Automotive Conference in Detroit. So thank you for your time and interest in Tesla and have a great day.

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