特斯拉 (TSLA) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Tesla Motors Incorporated fourth quarter 2011 financial results Q&A conference call. During today's call, all lines will be in a listen-only mode. Later we will conduct a question-and-answer session and instructions on how to participate will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded. Now I would like to turn the program over to Jeff Evanson.

Thank you, Matthew. Good afternoon, everyone. Welcome to Tesla Motors fourth quarter and full-year 2011 financial results Q&A session. I'm joined today by Elon Musk, Tesla's Chairman, CEO and Chief Product Architect and Deepak Ahuja, Tesla's Chief Financial Officer. We announced our financial results for the fourth quarter and full-year shortly after 1 PM Pacific time today. The shareholder letter, financial results and webcast of this Q&A are all available at the Company's Investor Relations website at IR.teslamotors.com. Like last quarter, this call will consist of some brief remarks by Elon followed by time for questions-and-answers. We will conduct the Q&A session live so if you have not already done so, please log in now if you wish to ask a question. During the course of this call, we may discuss our business outlook and make forward-looking statements. Such statements are only predictions based on management's current expectations. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Form 10-Q filed with the SEC. Such forward-looking statements represent our views only as of today and should not be relied upon after today. We also disclaim any obligation to update these forward-looking statements. Now let me pass the call to Elon.

All right, well, welcome. (inaudible) to make a few comments. I'm incredibly excited by the sales and the interest in the Model X. When you introduce the product that is really groundbreaking and innovative you don't necessarily know how customers are going to react to that and they are reacting incredibly well and from a customer standpoint the Model X was clearly a home run and they've spoken with their dollars by putting down reservations on the Model X. In fact, if anyone on the call is interested in a Model X, I recommend putting down a deposit soon because this is by far the best selling product in Tesla history by a significant margin. It is just great. That's the main thing I wanted to mention. And then the other thing being that we've begun work on our first full Mercedes powertrain. Previously we've done the battery packs and the chargers and now we doing an entire powertrain for Mercedes. As is Tesla policy we don't comment on the details of powertrain agreements. We leave that to our strategic partner. So we will leave that up to Daimler whether they want to speak in more detailed about that. With those [interrupted] comments let's jump into questions.

(Operator Instructions) Amir Rozwadowski, Barclays Capital.

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

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

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

Sure. I do expect that is going to be weighted towards the higher end versions of the Model S. Necessarily so for the Signature Series which basically comes with almost all the options. That is the first 1,000 vehicles. But then even beyond that we've had to deliver our Regular Series with the 300-mile range and then we drop to the 230-mile range and then the 160-mile range version doesn't get delivered. We don't start deliveries on those in 2012, early next year. That's certainly going to shift the weighting towards the higher end versions of the Model S. We'll have, I think a much better sense -- really quite a precise sense for that in the coming months as we're releasing the configurator and see exactly what options people take.

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

I feel confident saying that Tesla does not need to ever raise another financing round. In terms of need. It is possible that we may choose, that we may want to do so, but importantly, we do not need to do so. At least by our projection. So yes, we are in a really strong cash position. Our relationship with the DoE is very good. So I feel pretty secure on those fronts.

Great. Thank you very much for the incremental color.

Jesse Pichel, Jefferies.

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

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

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

Peter Christiansen, Bank of America Merrill Lynch.

Elon, I was wondering if you could just give us some color on the range, the guidance range, is that more of a function of Model S output or the timing of development services revenue and how does that tie into your gross margin outlook?

I will leave Deepak to answer most that. Certainly, the bulk of the 2012 revenue is Model S related. Deepak?

There are three elements to this, Steve. Obviously the biggest one is our projection of 5,000 Model Ss which drives it and then we have our own Roadster sales that we will have in Europe and in Asia. And beyond that we have the powertrain components business with Toyota. Then some bit of development services revenue with OEMs.

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

Are you referring to the Daimler program? Clearly there's more revenue but in our minds it's the ability to provide to Daimler a much higher performing vehicle which includes the full integration of our systems. It allows us to provide a much more cost effective and higher performing EV to Daimler rather than just our battery pack which gets integrated into their system.

Yes, exactly, by providing a full powertrain, it's a really seamless integration. It is a better customer experience and everything's really optimized to work well with the other elements. We demonstrated that for Daimler. They're pretty impressed and that's what led them to what we've got.

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

I'm not too worried about competitor threats because just the market is so big. What we are really focused on is not what any other company's doing but rather are we making the best possible product. Is there anything we can do to make a product that is going to amaze and delight customers more. That's, I think the right thing to focus on. We are going to do as the next significant vehicle -- the next major vehicle announced after the Model X, will be a Gen 3. I've made these comments to some of the media, but it's perhaps worth reaffirming that. Previously we were going to do a Next Generation Roadster after the Model X. But I've absolutely gained enough confidence that the technology will be scalable to higher volume but maybe a bit sooner and so we will be able to go to our third generation vehicle which will be a mass market vehicle with the price in the $30,000 range. If we were to accelerate that, it would be an argument for being -- doing a modest capital raise.

Dan Galves, Deutsche Bank.

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

Yes, (inaudible) before the dies are shipped from Fuji who is our primary die supplier, they actually do stamp a number of body parts. So we actually do get production body parts before the die is shipped and are making cars with those production body parts now. That way when we received the dies then we put them into our stamping presses and all we are doing is just verifying that there's no meaningful difference between the stamping press at Fuji and our stamping press. But the dies themselves are already sorted out. As far as risks for production timing, yes, I can provide a little bit of color there, previously I said we expect to be 5-star on average, but maybe we'll be 4-star in some categories. It is looking increasingly like we will be 5-star in all categories. That is looking increasingly optimistic. There's a particular challenge with the fifth percentile female in the passenger, the very front passenger seat.

Just had a meeting this morning which looks like we will be able to achieve 5-star in that category which is great news. We are going to be doing some pretty innovative things, working with Takata who is our airbag supplier. So that's good. I think all our homologation timeline is on track in terms of the certification that Dan was asking. Since most of that certification is self-certification and it's on production intent constant part and as you mentioned the dies in Fuji are producing the parts which allow us to make the bodies and get that certification done. Jeff was suggesting that I should reaffirm that it's looking like we're 5-star in all categories. I don't want to say for sure, sure. But it is looking like that's quite likely. I'm sorry. Just in case there was any ambiguating. Sorry.

I think we've answered Dan's question.

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

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

Patrick Archambault, Goldman Sachs.

I guess maybe my first question would be, as we think about -- I think reading through here it sounds like if you look at the R&D and CapEx plan for 2012 it is largely still Model S focused, unless I'm mistaken; right? I think the wording is that on the R&D front by the end there is some X spending that picks up. How do we think about what that might look like both on a CapEx basis next year? I'm presuming the R&D in the CapEx for that program is going to be really at its peak. How should we think about that? Whatever you're comfortable talking about maybe a year on year comparison or a comparison of how it is vis a vis what you spent on the S, presumably, obviously it is a lot less because it is on the same platform. So just hoping you could mentioned that.

In fact, just to clarify firstly, the R&D spending on the S should reduce in the second half of the year it said in the letter, not just with the end of 2012. Because once we go into the production of the S, a lot of foreign manufacturing expenses, preproduction which are presently in R&D will move into cost of goods sold. So there should be a substantial reduction and we will be done with a lot of the spending we are presently incurring on building the prototypes. And testing them. So yes, there will be some ongoing R&D on the Ss. We look to bring out a European version, or fine tune some other things, but it will be at a lower level. Then we will see a pickup in the X spending at that point. The same goes for CapEx. A lot of our CapEx is in the first half, it is heavily weighted. We bid our suppliers both for tooling and equipment, the final payment's once we sign off on the tooling and the equipment.

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

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

You're probably right. But as Deepak says it is maybe -- it's that they're saving in both but relatively speaking there's probably more savings in CapEx than there are in R&D.

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

Yes. It's just like that phrase in Texas Hold'em, like you never know what the River Card is going to be. Well, you never know, could be.

Okay. I guess last one, just -- I know you guys have reiterated this before, but just to remind myself, what kind of IP protections do you have in place when you do these programs with other OEMs. What kind of restrictions are there to prevent them from leveraging what they learned from working with you? And doing something independently?

Our relationship with Toyota and Daimler where we have these programs has been such that they are very respectful of our IP. Certainly, we don't see any issues where this relationship is based on their desire to do things their own way and we think feel very comfortable. And as we grow that business, we will look at and if we get to very high volumes we'd look at licensing and other opportunities to manage that growth. But at this time we are not concerned about our IP in these relationships.

I'm going to say, it's been a really great working with Toyota and Daimler. They are really stand up companies. There's been no indication at all of them wanting to abscond with IP and we've got pretty clear agreements lineating what IP belongs to which Company and we really had no disputes at all. There's quite a bit of mutual trust there. We do of course have patents. There are quite a few patents, but there's never really even been a bout of contention of any significance. And we've actually said we are open to licensing IP as well so it's not as though we necessarily have to be the ones manufacturing the powertrain if our partners want to do that then we can license them to the IP. At certain volume at 100,000 units or something that then can make a lot of sense. (inaudible) model in that sense. I should say, I was also being a little cheeky there with the River Card, but I think the real River Card is going to be the supercharger. When people really see how awesome that is. It is a pretty killer. We will unveil that with all the elements of the supercharger later this year.

That's the Stage 3 Charger, correct?

It's beyond Stage 3.

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

Himanshu Patel, JPMorgan.

A few questions. Just, I wanted to clarify on the R&D. You did $208 million in full year 2011. You're sort of indicating about a $70 million annualized reduction from the sort of fall off on Model S and Fremont related cost, gets you to run rate of $138 million and then you're indicating some uptick from there related to the Model X in the second half. I guess could you justify simplify all of this and just give us a 2012 R&D number that you are thinking and then also any sort of dimensioning you can do on sort of just a run rate of that number prospectively either in absolute terms or as a percentage of sales?

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

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

The former.

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

That's right.

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

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

$200 million for this year?

Yes.

Okay. Then the next question is, just the Roadster, what is the long-term plan for that? Will that be reincarnated at some stage? Or is this just going into the sunset for ever?

Our intent with the Roadster -- or the first version of Roadster was really to create a real collectors item. It is obviously the first viable electric car of the modern era. I think it is likely to be one of our first true collectors cars of the 21st century and we want it to be that -- That's why we capped the volume at 2,500. They're will be at some point a new generation Roadster. But my only comment, that's going to come after the third generation vehicle. That pushes it out probably about four years or so.

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

I'm not sure we've actually ever said anything about explicitly or publicly about a $200 per kilowatt hour. I wouldn't put it, people just assume that we have. I do think that cost per kilowatt hour at the sale level will decline below that -- below $200. In the not-too-distant future. I don't -- then there's incremental cost for the pack. The cost of the seller was not the cost of the pack with all the pack safety systems are included. The cost per kilowatt hour of the battery pack is a high proprietary number, so that's something we'd guard pretty closely. In terms of where it is at any given point in time.

Maybe just one last question. What was the thought process on opening up the reservation book for the X at this moment? Clearly there some demand for it, but are there any risk that it could be some cannibalization of S volumes?

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

(Operator Instructions) Andrea James, Dougherty & Company.

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

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

Over time we'll have a lot more cars out there, Andrea. So clearly any customer who wants to have a test drive before (inaudible) that should not be a problem at all.

Absolutely. Given the fact that there's excess demand for the Model S, even if somebody doesn't like the Model S, they are probably -- should probably take delivery and then sell it because I expect that the cars will sell for more than the nominal price.

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

Yes, we're going to do a little bit of both, so there will be cars that are -- marketing cars that are delivered to the stores for test drives. That's going to be having a parallel with delivery to customers.

Okay. Then moving on to just Toyota. How has your communication gone with them as far as them saying this is what we need and when. Do they give you hard targets or moving targets? And also you said you're going to do a shipment in Q2, is that in line with the Rev Rec on that contract? Thank you.

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

Okay. You think it will be lumpy there then?

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

Adam Jonas, Morgan Stanley.

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

It would probably coincide, yes. We definitely don't want to deliver -- really we want the car to be as close to perfect as possible before we get it to any automotive journalists to just drive.

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

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

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

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

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

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

For the X.

For the X, yes.

Yes. Absolutely.

I presume with the order of magnitude difference on the upfront reservation per for Signature X would be comparable to a Signature S versus the higher battery non Signature S?

For the model that's regular series which is the $5,000 reservation, then there's Signature Series which is $40,000, it's the same for the Model X. But the $5,000 number is in (inaudible) the configuration of the Model S.

Ben Kallo, Robert W Baird.

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

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

Okay. But would that be a possibility if something came up where you couldn't get the dies?

There's always a possibility, yes. We could always have a lot of parts produced at Fuji and have them shipped when the dies is coming but clearly that's not part of the plan.

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

For the Model X?

Yes, for the Model X.

We are just scaling that at roughly 0.5 to 0.75 of Model S. And it could be higher than that. I think that based on the demand we're seen thus far, it probably will be higher than that. But we don't know -- I think it probably will be higher than that. (inaudible) speculate as to an exact number but --

We eventually put it as a good conservative projection.

I would say a conservative projection, yes.

Okay, great. Actually, finally, could you just talk about your 5-star rating and the timing around that. We don't need that 5-star rating before the cars can actually be sold, is that correct? Should I understand it like that? It could come after you start marketing your cars?

Yes. You do everything that's necessary to achieve the cars 5-star rating and then it is officially awarded at some point after start of production. Yes, but you pretty much know in advance what it's going to be. Yes.

And to your point, your right. We don't have to have a 5-star rating to get the car in production, it's our goal to get there. There's no regulatory requirement.

Yes. No, no absolutely. Really our goal with the Model S was to create the safest car on the road. To be the safe car on the road you really -- you obviously want to inspire to a 5-star in every category and actually there isn't a 6-star but we aim for a virtual 6-star. If you achieve that, the highest possible safety rating.

Carter Driscoll, Capstone.

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

Sure. We would expect to have the full range of leasing and financing options that people are used to seeing for cars. And probably working with a number of large financial institutions to make that happen. We've had some very promising talks. But yes, we definitely want to make sure that the cars are as affordable as possible. I think there's an argument actually that the appeal of electric cars on the leasing side is going to be greater than on the purchase side. I certainly see that in solar. It is much more appealing to have a solar system on a lease basis because people can then compare that correctly with the cost that they are paying from the utility. Since the cost of electricity is so much less than the cost of gasoline it is really we're talking about an order of magnitude difference. By leasing the car and comparing and adding that cost of electricity versus comparing the lease cost of a gasoline car and the price of gasoline which is likely to be increasingly expensive, the value proposition to customers on purely an economic level is going to be that much more compelling.

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

Carter, I think Elon sort of answered there at a high level in one of the earlier questions that initially we will have the Signature Series which is 300-miles or the 85 kilowatt battery pack and then we will have the base 85 kilowatt battery pack. In addition, we're going to offer the performance version which we expect to have a very fairly significant debut given the specs on that. So between that and the options, we wouldn't be surprised if there's on average a $10,000 to $15,000 pick up above the base price which is fairly normal in the premium (inaudible). And then in 2012 it becomes a mix of sales, 2013 rather becomes a mix of sales in Asia and Europe, their pricing structures are different in the content, what's standard versus optional is different. So as we sort that out, for 2013, I know we'll provide more granularity. But I think 2012 is fairly clear. Given our plans of launching the different series over time.

Okay, just keeping an eye on the time here, we probably have time for questions from maybe one more analyst. So operator, just one more, please.

Michael Lew, Needham.

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

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

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

It would be targeted, I think worldwide.

Worldwide?

Certainly inclusive of China. I wouldn't say virtually every country in the world, but certainly China. It is pretty to hard to ignore China as a market these days. I think -- in fact, we expect to be selling the Model S and the Model X in China. We think that there could be a lot of appeal interestingly for the Model X in China.

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

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

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

I think you kind of see most of the material changes coming because you have to implement them at large scale. So it's not as though you could have something that's just working in a lab and then very rapidly bring that to full scale production. Plus you have to assess things like calendar life degradation and particularly as well as cycle life degradation. So you tend to see sale chemistry changes coming from a few years away. We've got a roadmap of changes that look pretty interesting and of course the steady improvement, year-over-year. But that's not to say if we were to go and implement a new chemistry every year. I think we'd probably look to implement new chemistries probably every three years or something like that.

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

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

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