特斯拉 (TSLA) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tesla Motors Incorporated third quarter 2011 financial results and Q&A conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) Today's call is being recorded. Now, I would like to turn the call over to your host, Jeff Evanson.

Thank you, Matthew and good afternoon, everyone. Welcome to the Tesla motors third quarter 2011 financial results Q&A session. I am joined today by Elon Musk, Tesla's Chairman, CEO, and Chief Product Architect and Deepak Ahuja, Tesla's Chief Operating Officer. We announced our financial results for the third quarter, shortly after 1.00 pm, Pacific Time today. The shareholder letter, financial results and webcast of this Q&A session are all available at the Company's investor relations website at IR.teslamotors.com. Like last quarter this call will consist of some brief remarks by Elon followed by time for questions and answers. We will conduct the Q&A session live so if you have not already done so, please log in now if you wish to ask a question. During the course of this call, we may discuss our business outlook and make forward-looking statements. Such statements are only predictions based on management's current expectations. Actual events or results could differ materially due to a number of risks and uncertainties including those mentioned in our most recent Form 10-Q filed with the SEC. Such forward-looking statements represent our views only as today and should not be relied upon after today. We also disclaim any obligation to update these forward-looking statements and now let me pass the call to Elon.

Hi. Thanks for joining us. I think we can proceed directly to questions and there's no point in me reading something that you already have. Let's just get right to your questions.

Thank you (Operator Instructions) Adam Jonas of Morgan Stanley.

Hi, thanks, everybody. Elon, first question. The long term supply contracts with Panasonic. You said it gives you increased visibility on variable costs for sales, but do you also have increased confidence in the cost, i.e., based on what you have seen so far, is it better than you thought? And, the second part to that question is, if over time you have a competing supplier that offers a lower-cost solution, do you have any opt-out from Panasonic, and if so, what are some of the costs or types of cost for that opt-out? Thanks.

Sure, so, we do have firm pricing from Panasonic so we have very good predictability as to what prices will be over the next quote, 4 years. We are not obligated to purchase all of those sales, so it's possible for us to -- if Panasonic becomes un-competitive, to exit the deal, with relatively small -- there's some penalty, but it's quite small. Now, that being said, I feel pretty confident that Panasonic is going to be in the lead position from a sales and manufacturing standpoint for quite some time. And, we have pretty good visibility into what others are doing. So, I think we have got the best sales partner in the world, and so I'm just going to remain with that, for quite a while. Now, we do expect over that period of time, let's say, the next 4 years, to make a lot more cars than we've currently talked about the Panasonic deal in which is an order of 80,000. So, that definitely leaves room for a second source, if that does make sense.

Thanks. Can I ask a question about leasing? Any progress on making or establishing any leasing partner, as you get closer to the commercial launch of Model S?

Yes. I have actually -- we have had a number of conversations but have just decided to deprioritize that, initially, because there really didn't seem to be a need to have leasing take place in probably the first -- certainly, the first 6 months, but I think, maybe, in the first 12 months. And, so it is better for us to focus on more important things. We could certainly get leasing done, it just doesn't seem to be necessary to achieve our volume target in the first quote, 6 to 12 months. Yes

Okay. That's all I have. Thanks very much.

Thank you.

Dan Galves with Deutsche Bank Securities.

Good afternoon. Thanks for taking my questions. I just wanted to ask -- can you give us an update on what is left to be done before launch of the Model S? How do you feel like your suppliers are performing, or is there anything you are worried about, in terms of suppliers on time, or tooling getting to you guys on time?

Well, basically it's going very well. Like you said, it's going very well. In case that jinxes things. But things are going very well.

We have over 90% of the factory tooling equipment in place. I don't really know of any 1 thing that I would call out as being particularly risky, but there are a lot of little things, and that could, potentially go awry, but what I'm trying to make sure of, is that we have the agility to respond to any one of those things. So, we have, sort of, a special forces team, that is in the engineering and manufacturing side, that can go and tackle any specific problem, once it arises, but that we don't know what it is yet. If that makes any sense.

So yes, things look great. I don't really have anything to complain about right now. We do want to make sure this car is close to perfect as possible and I think, we could ship cars sooner than July, if we had lower standards in that regard. But we want to really create a good impression with customers, from the moment they receive the car. We don't want to rush to market.

Okay, yes. That sounds good. And then, you know, my next question is related to the mix of vehicles. When do you expect to, kind of, let the reservation holder start specifying or specking the cars, and I guess, you know, more longer term, do you feel like you have the flexibility to kind of meet whatever mix of vehicles comes at you in terms of options, battery sizes and that type of thing?

Yes. In fact, we are just deciding that right now. Which is to pick out, what is the best way to price the various options, such that if it strikes a good happy medium between customer value perception and gross margin to Tesla and we really put a lot of thought into that. But, we may need to adapt, obviously, after that, if our assumptions are wrong, and after we put out the option mix. We do expect to have that out, before the end of this year, so I think December, at latest.

Okay. And is there any, -- again, you feel like you have the flexibility to kind of meet whatever mix of vehicles people end up ordering?

Yes. I think so. And, for the first several months of production, we're going to constrain the option mix, to a pretty high -- you have to basically -- you have to order stuff that's got a pretty high option mix, initially. So, for example, and we said this several months ago, for the first 5 months or so, we won't be offering the 160-mile-range vehicle. It will just be the 300-mile and 230-mile range.

And there will be a couple of other options that are, kind of, mandatory in the initial period, so that makes it easier for us to constrain the number of variables in the start of production. So we don't have too many variations of vehicles coming out of the factory and I think that's sort of the best way to take advantage of early demand. Yes, it's kind of like when you bring out a new CPU, or something like that, it would initially be expensive and then, go down later, as production increased. So, we're kind of, insisting that people buy the heavily optioned car initially, and for the first several months.

Okay, that makes sense. One more, if I could. Based on the CapEx guidance, it looks the CapEx is going up a little bit slightly, next quarter. Will that represent the peak of CapEx spend for the next several quarters, and any indication you can give us on, kind of, the trajectory of--well, you're not really burning cash, because you're drawing the loan, but in terms of operating cash flow and CapEx, the trajectory of the negatives over the next several quarters, will it be moderating?

Deepak, would you like to take that?

Sure. It is on a full year basis, as you can see, we have taken down the CapEx guidance some slightly, although, in the big scheme of things, the timing difference really doesn't change things and doesn't matter much. It's difficult, for us to predict exactly what the quarterly CapEx is, given some of the timing issues, and how we pay suppliers. I think, as we pull together our 2012 guidance, and share that with you at the end of, during the Q4 earnings call, we can give you a better sense, at that point, of how CapEx will be spread through the year.

Okay, thanks very much.

Thanks, Dan.

Thank you. Andrea James of Dougherty & Company.

Hello. Good afternoon. So, in the quarter letter, it says something about CapEx may come in at the low end of guidance and then, you go on to say, in spite of controlled expenditures on certain projects, and you want to keep that confidential. And, I guess, any type of context would be helpful. What are you trying to convey by sharing this sort of mysterious detail and what are investors supposed to take away from it?

Well, I guess, as I mentioned this in the last earnings call, which is we -- I think it makes sense, strategically, to keep a few cards close to our vest, and not reveal everything. And that is essentially, that is part of what I am trying to hint at there. But I think, those are sort of, of a smart decisions that should -- there are things that we're doing, they are very important for long-term and when we do unveil them, I think people will -- most people will agree that those are sensible things to do.

But, we're not spending a ton on that, but we're spending enough to make sure that when the timing is right, we're -- we can be quick to market with a few things. But I think people aren't expecting. Sorry to be so obtuse. But, previously we have been very -- we weren't extremely open about things, and I just want to make the point that strategically, and going forward, there are a few things that it doesn't make sense to be completely open about for competitive strategic reasons.

Okay, and one more and then I will hop back in the queue. So, we see the Smart Fortwo program winding down, and now it looks like you have something new and Mercedes-related. I guess, how do we think about that, the size relative to Smart Fortwo program?

In deference to Daimler, I can't make any specific comments about this deal. We're really waiting until they're ready to talk about it some more. I would love to talk about it, but I do need to be respectful of our key strategic partners -- 1 of our key strategic partners.

When do you think you'll be able to speak more about it?

Well, hopefully around the end of this year, but that's really going to be upon mutual consent of Daimler and us. So, its when they are ready to talk about it, then that is when we will talk about it.

Okay, thank you.

Thank you. Himanshu Patel of JPMorgan.

Hi. Good afternoon, guys. A couple of questions. Elon, on the last call, you had made a vague reference to some additional strategic opportunities. Was that the Daimler LOI? Was that what that was in reference to?

No. I was referring to something different.

Okay. Number two, could you talk a little bit to just, Roadster volume. The quarterly cadence, really kind of, picked up. It looks like you sold 3 times as many. I guess, the growth rate is 45 units more than Q2, which seemed like it was 3 times as fast as what you saw Q1 to Q2. What, kind of, happened in the third quarter, and is there any way for us to think about, kind of, the quarterly cadence of Roadster volumes? And, is there any seasonal trends, here, that we should be thinking about either?

Yes, Roadster, of course, was always intended to be, kind of, a limited production vehicle and there certainly is some seasonality, given that it is a convertible sports car. So, it will tend to sell a little bit better in summer than winter.

But, I wouldn't read too much into Roadster sales, one way or the other. The biggest value the Roadster has, to Tesla, is really as kind of an advanced scout, to help us understand how to make an electric vehicle, and how it operates, and also for different countries and different climates and regulatory regimes. And, it is, kind of a beachhead, and it's really served its purpose very well, but we're really not moving away from that to the next major phase of things with the Model X. And, so I think that's what really matters in the long-term.

Okay. And then, I guess if you guys could speak, a little bit, to the kind of pace of reservation book building on the Model S. It looks like you're doing about 300 to 350 reservations a month here. Is there something to the pace of that, that we should be thinking about prospectively? Does it ever non-linear at one stage? It sounds like you're starting to be a lot more aggressive on the marketing. I'm just wondering if you guys had a view on how we should think about that?

Well, the rate of Model S reservations does appear to be accelerating, and I should say, we're not paying for any advertising. So it is not as though we actually advertise the Model S. We get a lot of press and absolutely have our stores and our sales team, particularly in North America, is starting to shift it's focus from the Roadster to, or has shifted it's focus from the Roadster to the Model S. But, it is noteworthy, that without advertising, that you're seeing this growth. I think that probably a lot of people don't realize that. And this is just word of mouth and our sales team.

But, I think, something that people are interested in buying the Model S should appreciate is that if the Model S reservations continue to appreciate, continue to accelerate, it's very important for them to put down a deposit soon or, they'll be getting a car in 2014. I think, sometimes people are given an impression of like how other cars are where there's a ton of them on the lot, and you can just go to the lot and buy one. But, that's not the case. They're all sold out, way in advance.

Okay, and then, I guess one last question. I think of the press release, you guys make a reference to OpEx rising slightly as you kind of prep for the factory launch. Deepak, I'm wondering if you could talk a little about it, the $74 million non-GAAP OpEx from this quarter. How does that, sort of, move over the next 2 or 3 quarters? I'm trying to understand, is that a linear, sort of, mild rise or does it, sort of, have a big spike in Q1 or Q2.

Sure. Before that, let me just add, that our reservations in Q3 for Model S were 1150, so they were closer to between 350 and 400 a month. And, as compared to 1,000 in Q2, so there was, clearly, an increase in Q3, that we saw. And then, in terms of OpEx, as you know, all of our manufacturing-related expense, in addition to R&D, is being booked as OpEx. Until we are in the launch mode for Model S, at that point, our manufacturing expenses would move out of R&D into cost of goods sold.

As a result, as we continue to hire more people, and we'll hire more of the production work force in the next few quarters, and start training them and getting ready, clearly our manufacturing-related expenses will continue to increase and that is going to drive our OpEx, primarily. At the same time, we'll see some decline in Model S development expenses, as some of the testing and supplier ED&T work gets done. So, there's a bit of in-and-out happening, but it's really, once we are in the production mode of Model S, and manufacturing expenses are in cost of goods sold, then we'll see an appreciable drop in OpEx.

Thank you.

Carter Driscoll of Capstone Investments.

Thank you. Good afternoon. I want to ask the first question, if I may, about, maybe you could add some additional color about the Model X. What you are hoping to unveil in December, do you think you will be able to have an alpha-model produced by then? Could you, maybe, compare and contrast the Model X with the Model S, in a little bit more detail? If I understand, correctly, you are going to be using the same power train and chassis. Could you maybe, just drill down a little bit, without revealing anything you don't want to, compare why the Model S would be in 1 segment versus the Model X being targeted at another type of customer segment?

Sure. I don't want to give away too much, because, obviously, then there wouldn't be much of an unveiling. Whereas, with the Model S, our goal is to address the premium sedan and to some degree, premium SUV market. With the Model X, we are also trying to bridge a market, but we are trying to address, primarily the SUV market bridging to the minivan market. So, what we are trying to achieve with the Model X, is to have more functionality than a minivan, being that it is easier to get in and out of, you can pack more cargo along with people, and that, I think, that is really missing. Right now, if you -- for a lot of people, I know that they're forced to buy a minivan and they kind of, hate it, but they need the functionality. So we want to give them that functionality. In fact we want to give them more than that functionality. It's something that looks really cool.

So, it's a little bit more functionality Do you anticipate that you will able to price segment? I imagine, the minivan segment is a tad more price-sensitive than the premium sedan group.

Well, the premium SUV. I know a lot of people who can afford to pay a lot more for a minivan, but there's just nothing that is out there to buy. There isn't really a premium minivan, and there's certainly, premium SUVs, like with Porsche Cayenne and whatnot. But, take Porsche Cayenne, it's got less room than some sedans. It's like a sedan, with more ride height, and really it's not that great. Sorry.

That is fair criticism. All right, thank you for that elaboration. Could you also, maybe, just talk, you had made a public statement, that you expect to reach net profitability in 2013,. Could you talk about what you are expecting? Obviously, the first 6 months, you are trying to limit the option range to reduce the level of potential production defects and tightly control that, initially. Could you talk about in 2013, where you think the mix of options and range, whether you're talking 160, the 230, the 300. Where do you think that mix will be to get you to that 25% targeted gross margin line, and what the variables might be that would increase it above or below?

Well, I can give you just my best guesses, I think most people are going to probably want the 230 mile range car. I think a lot of people are going to want the 300-plus mile car. We think we'll probably do 310 miles to 320 miles range. And, there are some other advantages to that car, in that, we're going to be offering a much longer battery warranty. There are some cool things that we're going to tie into long distance intercity fast-charging -- I think we'll see probably most people at the 230,and the next largest thing, the 300, and then the 160.

And then there are a number of other options that are pretty cool. We have the biggest roof opening of any car, I believe, of any van or SUV or anything. In fact, the Model S panoramic group, is the closest thing you can get to having a convertible without it being a convertible. A lot of people want to pick that option. The S expansion, which is able to dynamically adjust the ride height, according to the load of the car and it also improves efficiency on the highway, because it can hunker down. You can raise the car going through heavy snow. I think, a lot of people -- I hope a lot of people take that option because I don't think a lot of people don't even realize how cool that option is. It depends on how well we can convey the value of having that.

That's very helpful. And, maybe just switch gears quickly, and then I'll slip back in the queue. Can you give me a view of where the charging infrastructure is nationally, regionally, and where you expect it to be over the next 12 to, say 24 months and do you think that does support higher production level that you are hoping to achieve in 2013 and then, obviously a lot of competitor vehicles that will also need that infrastructure?

That's a good question. I think we're going to have a very exciting announcement about intra-city charging, or intra-city super charging, if you will. We developed this, what we will call the Tesla Supercharger, which is a 90 kilowatt charger, and I think we're hoping to have the first 1 installed, between Tesla stores, in L.A., probably in January or February time frame.

And then, there's a whole rollout schedule for that. And we're planning on getting the press around the unveiling of the first 1 because, when you see what this looks like in a highway rest stop parking lot, it's like the coolest thing. It looks like an advanced alien artifact landed in the middle of the otherwise drab -- well they are not that drab, we think it is still okay, but it just looks amazing and we'll allow people to charge their cars, to charge 150-miles in 30 minutes. So you can park, plug your car in, and grab a bite to eat, and come out and come back and continue your journey. But I feel like I'm getting ahead of myself on that.

That's very helpful. Obviously, you guys stay on top of legislative developments with electric vehicles. Could you talk about some of the noise that, perhaps, there might be a surcharge in terms of, Congress worried about losing the gas tax, as EVs proliferate, and how that may or may not impact sales?

Well, I think that is a high-class problem because if there are that many EVs, it pretty much means we've won. So, it would mean we're selling so many cars that it actually matters to the grid. I think we're probably more than a decade away from that. What we have seen for the Roadster is, the vast majority of charging occurs at night, in somebody's garage, which I guess, one would, intuitively, expect. And the great capacity at night, we have this huge mass capacity, so, it seems to fit well with the existing infrastructure.

Appreciate you taking my questions. I'll jump back in the queue now.

Thank you. Steve Milunovich from Bank of America, Merrill Lynch.

Thank you very much. Could you comment, a bit, about how you take back customer feedback and any changes that you're looking to make post the reveal on October 1. Obviously, you have generally had very good reviews, but there has been some concerns about seat comfort and a few other things. Do you have the ability or interest in taking that in and, potentially making any changes to the production model?

Yes. Absolutely. We emphasized it was really a Beta, that people were getting a test ride in. Because, there are 1,000 little details that we want to improve, from the Beta, and my goal requires us to be as close to perfect as possible. I think, certainly, the seat needs to be extremely comfortable. Just everything needs to be as close to perfect as possible. We actually can't beat out our Beta. We try to set people's expectations appropriately, but I think almost all of the concerns that I have heard people express about the Beta, are concerns that we already have planned to address.

Okay. And then, as I recall, last quarter, you had discussed potentially a large contract. I thought that was with Toyota and you had suggested it could be an order of magnitude larger than what you have done before. Would you like to provide any update on that thinking?

I think we remain quite optimistic about the future relationship with Toyota. Along with Daimler, they are a key strategic partner, and things seem to be going very well. So, as with -- I always prefer to take my cue from our strategic partner before making too much of a -- before talking about something too much. So, I think, stay tuned on that.

Okay, thank you. It was worth a shot. And finally, as you pointed out, you haven't had to advertise yet. Will you begin to ship the car, you obviously, have enough demand for some period of time so you won't necessarily need to advertise then, but, when do you plan on advertising? And when you do start to ship, I think it might be worth, from a branding standpoint, beginning to get out there, in any case.

Yes. Definitely, at some point, we'll be advertising. But, I think it will be a few years before we do advertising. If we're production-limited, then there's not much point in spending money on advertising, and if we want to get to the point where we're not production-limited, then advertising can make sense. So, I guess we'll probably start advertising in 2013. Yes, that is just a guess. We may not need to in 2013, but I wouldn't say that it would be any sooner than 2013.

Great, thank you.

Thank you. Aditya Oberoi from Goldman Sachs.

Great, thanks a lot. Can you provide some color around the costs you are incurring in Europe related to the Roadster issue?

Oh, you mean with respect to Top Gear, I'm sorry, trashing us?

Yes.

Well, I have to be a little bit careful, because we do have an ongoing legal action there and, we're just trying to right a wrong, essentially. Tesla was really wronged by that show, and it left the negative, lasting impression in the UK, particularly because that is where Top Gear is strongest, so we just have to change that bad data point that has been conveyed. And I think, we're making some progress in that direction, and I don't want to say anything that would negatively affect our legal case there, so I'll have to, probably not say any more before I put my foot in my mouth.

Or, maybe I can ask you it in another way that you guys mentioned that you guys are incurring additional costs to correct consumer misperception. So are these costs related to advertising or are they more of just, legal costs?

Yes. It's not advertising, but certainly legal costs. We do executive marketing events. We have salespeople on salary, and of course, then there's a little bit of brand damage, but we'll correct that brand damage over time, but it's still there.

Got it. And, can you talk a little bit, about what are those 10% of things that are left at the Fremont facility as you guys mentioned, that you are almost 90% there.

Yes, it's less with each passing week. So, the door enclosures, basically closures, which are sort of, doors, bonnets, and trunk. The assembly equipment for that, is arriving but hasn't completely arrived. That is one example. And, I think, we expect to have that in the next 1month or 2. The next big thing after that will be the staffing dies for the body panels. Those are being made by our 3G partner on that front. Yes, we should have all of the equipment in place by the end of this year and that is going to be working -- we have to work very hard to iron out any bugs in the overall manufacturing line. Yes.

Got it.

To add to Elon's information, a lot of this equipment is at our supplier's and is being tested including the body enclosures line, and when the trials are completed and they are fully acceptable to us, they get shipped to us. There is progress happening at our suppliers, at the same time.

That is a good point. I should have mentioned that. It has been for our suppliers, for those assemblies, is they (inaudible) they are debugging it (inaudible) and once it is debugged they ship it to us, so in principle, at least at the manufacturing module level, stuff has been de-bugged, and then we are just kind of, what we have to do pretty much is de-bugging the module-to-module interaction, as stuff moves from one part of the line to the next. So, that should minimize overall manufacturing line risks.

And while they're doing this, we are continuing to do a bit of those in our Fremont factory, so even though we may not have the full automation, in some cases, our suppliers can provide us those parts, based on automation in their facility. And, that is allowing us to then continue doing the build out and just refining and learning our own manufacturing processes and interacting with our suppliers as well.

Exactly. When Fuji makes the stamping dies, and they first stamp a bunch of panels, in Japan or Taiwan or whatever the case may be and then they send us those parts and the stamping die.

But that is very helpful. One last one if I may ask. The contract you guys signed with Panasonic, is it just for Model S or all of the vehicles that will be on the Model S architecture?

We plan on using a common battery cell so, it would apply to all vehicles that use -- it would apply more than just the Model S. Not necessarily all vehicles, but more than just a Model S.

Great. Thanks a lot, guys.

Thanks.

Thank you. Ben Callow of Robert W. Baird

Thanks for taking my question. I wanted to focus on the retail strategy. It looks like you are going to end the year with about 25 stores, I think, is the number. Can you kind of talk about how reservations have changed for the Model S, if you are seeing reservations actually come from the stores or from surrounding areas, whether it is on the internet? And also, could you talk about what metrics each of those locations are going to be judged on, as you go forward? Is there actual targets for reservations at each store?

Yes, we see most of our reservations coming from the stores, particularly the ones that have high foot traffic. We are still at the early stages so it is difficult to say what should a store do, but early indications are very promising. We're just seeing an incredible number of people come through our stores, in a high traffic shopping mall, and even if they don't buy a car now, we kind of plant the seed for them to buy a car in the future, whether it's a Model S, a Model X or a future, sort of, third generation vehicle.

So, we think our store strategies and it to people, to be very powerful and fundamentally different from how things have historically been in the auto business. And, most people don't have a positive experience buying a car and for some, they sort of look at it like it is a dental appointment. We want to get to the complete opposite side of things, where you're magnetically drawn into the Tesla store, and it just is a really appealing place to be and, we don't actually don't have, -- they not really sales people; they are product specialists. But they are just there to, sort of, explain anything you know about the Model S or electric vehicles in general.

And, it seems to be really going well. We sell clothing, as well. We are actually doing quite a good business with Tesla clothing. Just unexpected revenue source.

And, so, along those lines, what is the strategy and then the roll-out of actually having Model S vehicles at each location? I guess seeing is believing, in some ways.

Sure, absolutely. And, certainly, it has a big impact if we have got a Model S Beta there or not. For the next few months, we have a dichotomy which is, that we need Beta vehicles for testing and we need Beta vehicles so that customers can see them. So, we have to make a tough trade between those 2 competing priorities, But that is not going to be an issue a few months from now, and so we'll start deploying the cars to all of the stores in the first quarter.

Okay, and the last question is on the testing front, any update on where you are, as far as, safety testing goes?

Yes, the safety testing is looking really good. I set an extremely high bar, which is to be a 5-star crash rating in every category, and from what I am told, if we achieve that, we will be the only car that is 5-star crash rated in every category, by 2012 standards. So, that is looking extremely good. Now, we have a fundamental advantage, still, with the Model S, which is because we do not have a large engine block in the front, and in fact, we have a front trunk, that gives us a much longer crumple zone than is possible in other premium sedans.

I'm not sure my analogy is good, but if you think of it like, if you jump out of a 5-story window, you probably want to jump into an Olympic-sized swimming pool rather than kiddie pool. And, having that long crumple zone, means that you can spread out the deceleration of the car over a much longer distance, whereas, otherwise a gas-run sedan can't do that, because it would just shove the engine right through your chest. And, that is probably why we can -- that is fundamentally, that superior architecture as well we have a shot at making this the safest car in the world.

Great. Thank you very much.

You're welcome.

Thank you. Andrea James of Dougherty & Company.

Hi. Thanks for letting me lob in one more. So, I thought this was interesting. You saw in the UK that a TV show can affect a business in a negative and also in a quantifiable way. So, the logical follow-up to me, would be, did you see a quantifiable effect from the Model S event and the subsequent positive media? And if so, how did it track with what your expectations were after the event? Thanks.

Sure, We definitely had a positive impact from the Model S Beta event. And, with roughly 3000 people came to visit our factory in Fremont; many of them coming from countries all around the world. And, our goal there was with actually -- it was actually not media, it was really to let our customers know that their faith was not misplaced. That was the most important thing. So, in order to come to the event, you had to be a Model S reservation holder and yes, we wanted to show this is what the car is, at least in Beta form; with the test drive and this is our factory and it's real and the equipment is there.

And so, when they go home and they talk to their friends and colleagues, they can speak with confidence that they have been in the car and they have seen the factory and really the best people to sell a product are your existing customers. Because they don't really have any incentives. And, that was the main goal and I think that's been effective and it will continue to be effective and the media was also very positive and helpful as well.

Did you see reservations increase or did you see some of the $5000 convert over to the 40?

We did. There are 1000 cars in the Signature Series and there are only a few hundred left actually, so there are 700-something of the Signature Series have been reserved. In fact, the only way to get a car next year is if you buy 1 of the 200 remaining Signature Series cars. So you have total number of people compared to that, and it was just a awesome event.

Thank you.

Thank you. Ben Rose of Battle Road Research.

Good afternoon. Based upon the feedback from the Betas, with regard to the use of materials in the Model S, are you thinking any differently about possibly using carbon fiber, or other advanced materials in the Model X and other forthcoming vehicles?

Yes. We'll be offering carbon fiber as well as a couple of wood trim options, one being lace wood which is kind of a cool, kind of black wood and the other thing banana leaf. Actually, its fallen banana leaf. If somebody is looking for the moral high ground, I don't think we could find better moral high ground than fallen banana leaf, as the choice of wood trim. And, we'll continue to try to add some interesting options over time so -- and there will be some things unique to the Model X, certainly. We really want to drive innovation on almost every front with cars, and whatever we can think of that has the potential to amaze and delight our customers, we want to do that.

Okay. And then, just one final question, with regard to your plans for future vehicles, sort of, broadly defined. Is it possible that you would look at some other kind of off-road categories and maybe, sort of, nontraditional automotive categories where you could parlay your electric expertise?

I think we need to stay focused on the Model S and that is really sort of driving our focus and then the Model X. But with the Model X, though, it's going to be a pretty great operating vehicle, because we also have that air suspension that you can raise the ride height and it's going to have a particularly killer 4-wheel drive system. I think probably the best 4 wheel drive system of any car, period. So that should cover us really well on the operating front. Long-term, it's possible that we could go into a wide range of areas, but, I think, in short-term it's very important to stay focused.

Okay, thank you.

Thank you. Jessie Mitchell of Jeffrey's.

Hi. This is Elaine Kwei for Jessie. Thanks for taking our question. Just to follow-up on Ben Callow's earlier question. What, exactly, is left in terms of the federal and state crash testing and other requirements needed to get a new car on the road and to qualify for the different incentives out there such as HOV lanes? Have a couple of Model S's already been sacrificed or will they be soon?

Actually, we're going to sacrifice quite a few Model S's to crash testing, I think probably approaching 12, and there's another 12 to come, as we iterate through -- we do as much as we can with simulations and do the crash tests to calibrate and validate the simulations and you go though a series of iteration cycles. We're very close to the end of that. I think the final crash test were in September and that we made the correct changes. So, that is all looking really good. And as far as -- because the Model S is pure electric, any state that has HOV preference for pure electric, such as California, you will be able to drive in the carpool lane without a problem as you can right now with Roadster.

Great.

And, I think pure electric we don't have, sort of, EPA issues to deal with because we don't have any direct emissions.

Great. And now that we're talking about a car that could potentially be adopted in much greater numbers in some of the prior maybe, perhaps more niche EVs, are you engaging with any local utilities or anything like that, in discussions about potential customer issues with charging. Will there be smart charging Apps built in? I guess it's kind of an idiot-proofing question. So, there is any case of potential issues of crashing transformers or people tripling their PG and E bills?

Well, we got our bit of experience with that, with the Roadster. Not with the tripling P G & E bills, not with the bad stuff you mentioned.

But, in terms of working out the bugs with charging and knowing what's going to be an issue with houses out there. That is where the Roadster has been really, really valuable, so where we did make mistakes with the Roadster, we made them at a small scale, in order to avoid making them with a large scale with the Model S and subsequent vehicles. So I think we've got a pretty good handle on things, and there's been a lot of intelligence in the charge algorithms of the Model S and even more so that the Roadster. And yes, the vehicle automatically backs to the input charging at the current voltage so as not to create problems with whatever circuits are feeding it. It has a really intelligent feedback loop.

Matthew, we want to keep the call to 1 hour, so are there any more questions, let's go to the last caller, please.

Okay. Bryan Russell of Russell Group.

Thank you. Good evening. Real quick, on the stores, as you ramp up to a higher volume and get past the initial reservations, what are the plans for trade-ins? How is that going to be handled?

We definitely want to enable trade-ins and we're talking to a couple of large used car groups in the country, to be able to handle that in a seamless manner for our customers. So, we will have that ability to deal with trade-ins for the Model S. For the Roadster, we kind of sidestep, that issue. It wasn't really that important for the Roadster, but for the Model S, it certainly is.

Okay, thank you.

All right. Well, thanks, everyone. And, yes, we look forward to next quarter.

Thank you.

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