特斯拉 (TSLA) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Tesla Motors first-quarter 2012 financial results. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time.

( Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jeff Evanson. Please go ahead.

Thank you, Patrick and good afternoon, everyone. Welcome to the Tesla Motors first-quarter 2012 financial results question-and- answer conference call. I am joined today by Elon Musk, Tesla's Chairman, CEO and Chief Product Architect, as well as Deepak Ahuja, Tesla's Chief Financial Officer. We announced our financial results for the first-quarter, shortly after 1 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.

Today's call will consist of questions and answers and we will conduct the Q&A session live. So if you have not already done so, please press star one 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-K 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. And now, let me pass the call to Elon.

Alright, I think we can go right into questions. So, let's go ahead and start addressing the questions.

Thank you. If you a question at this time, please press star one on your touch-tone telephone.

( Operator Instructions)

Our first question comes from Amir Rozwadowski from Barclays Capital. Your line is open.

Thank you very much and good afternoon, Elon, Deepak and Jeff. I was wondering if we could talk a bit about the ramping of your facility at the moment. It seems as though, based on your release, you do expect to now deliver the vehicles in the June time frame. I was wondering if you could provide us an update in terms of getting the factory up and running to the run rate at which you expect to be delivering vehicles and where you stand today.

Well, the initial ramp up course would be, sort of slow and then will spool up rapidly. We are keeping exact ramp sort of confidential and in part because we want to, as we increase production, we want to stabilize it at various plateaus, evaluate the quality, if it looks good, then ramp up. Our goal is to be at a run rate, an annualized run rate of greater than 20,000 units at the end of the year. But it's just a little difficult to predict that ramp, exactly, in advance. It's going to depend on how rapidly we can make cars at exceptional quality.

Are there any major pieces that need to be shipped in or installed, Elon? Is there any color you can give us as to where you stand today versus perhaps your last earnings call?

Yes. We have all the factory machinery in place. We have the vast majority of the tooling in place. There are a few stamping dies that are stragglers, due to late changes. And those are coming in next month. But really, the machinery is in place and it's just a question of ironing out any bugs with the overall manufacturing system.

The factory is like a big machine with many subcomponents essentially. So, it's getting that machine to work effectively at the subsystem level and then in the transition from one subsystem to the next and then being able to spool it up and go at it at a greater and greater speed. We really want to be supersensitive to the quality of the product. Our aspiration is to deliver cars that have zero defects. So, it will take some time to be able to have the whole system moved with equal cadence to achieve that goal.

But, you do feel comfortable that you can hit the 20,000 or greater by the end of the year?

I am highly confident of that, yes.

Great Thank you very much for increments of color.

Our next question comes from Chris Kovacs from Robert Baird. Your line is open.

Thanks for taking my question. Can you give us a sense of, it's going to be another record quarter with reservations. You have over 10,000 now. Can you tell us what percentage of those you started to lock in, take specs for cars? And then can you maybe comment on how the new stores have affected your reservation momentum and how you expect the momentum to increase or change, if you allow customers to test drive cars in the summer?

Sure. We have begun to lock in the cars that are -- as we queue the parts for production. So, we've got the first 100 cars locked in. We are really not seeing any significant follow-up from, at least in the beginning, from people -- as far as people said -- Oh, I put down a deposit but I'm not sure I want the car. It's really been a high rate of people wanting to put down the remainder of the money and complete the register of the vehicle.

Regarding the new stores and how that's going, George, would you? George Blankenship, here. George would probably be the best person to provide some color and detail regarding the stores.

We had very, very good traffic in Q1, as the shareholder letter said. We had over 410,000 people go through the six new design stores that we have. We are now getting ready to start opening our new stores for this year. We plan to open about 10 more new stores of the new design stores in traffic locations similar to those that the six exist in.

The traffic has been very positive and has a positive effect on the reservation flow. Both from Model X -- Model S and Model X. It has been very, very positive, and we are looking to open at least 10 stores this year of the new design.

I should tell you, with a particular focus in the greater New York area. Where we think there is a substantial untapped market.

You combine that with the additional marketing colors that will be there in the stores and the customer rides and drives, definitely there will be a significantly higher level of a marketing effort and presence that the customers will see starting this quarter.

It's worth noting that-- I mean it's the sign-ups that we've-- the 10,000 people who have put down a reservation payment, they have not test-driven the cars. So, we're achieving those numbers with no advertising, with no test drives, and in many cases, with stores that only have cars part of the time. By the end of this month, I think that we will have more or less, cars in all the stores. But to date, we've-- since these cars have been reserved for testing, much of the time there has been no Model S in the store.

It obviously adds to the sales challenge. So I think we should see some acceleration of reservations as a function of having cars that people can actually drive. And, having more stores open and increased word-of-mouth from people seeing cars actually on the road and eliminate any question marks as to whether the car is, in the mind of the consumer, if the car brings production.

Thank you guys for that color. Just one follow-up. There was some news that came out with Toyota and the RAV4 announcing this week, I think they mentioned 2,600 cars over the next three years or so. Can you talk about -- is there more to that contract contemplated in that number in terms of the $100 million deal you guys have with them, besides the 2,600 cars? What is your indication of Toyota or what is the triggers for them to expand that number in future years, beyond the next three?

We've had and continue to have extensive discussions with Toyota about scaling up the quantity significantly. Toyota wants to wait until the space of the RAV4 program gets on the road before potentially signing anything that's at a larger scale. But, I think that's certainly good grounds to conclude that the scale up -- the odds of scaling up, I think, are good. I am not sure I could characterize with any greater sense to you than that, but I think the reaction to the electric RAV4 will be quite positive.

This car has amazing acceleration and handling and one thing that wasn't clear in the announcement earlier this week is it's got 60% more range than Leaf in highway, city, or any scenario, really. It should be quite a compelling vehicle from its capabilities, it's [unintelligible] capabilities compared to a Leaf. The price is a bit on the high side, but the volume numbers initially are low. So hopefully that's not an issue.

Okay. Thank you very much.

Our next question comes from Patrick Archambault from Goldman Sachs. Your line is open.

I guess two questions from my end. Obviously, you have a pretty big event and a well anticipated event in front of you. Can you tell us a little bit about what your strategy is to, you know, get some cars in the hands of the press? Clearly, word-of-mouth, as you say, is important and that's going to be a key channel for getting the thing reviewed and, hopefully helping the reservation numbers. So how are you thinking about that in terms of your marketing strategy over the coming month or two?

We have had limited test rides for journalists, going back as far as September. The more exhaustive reviews, I think we want to wait until the car is as close to perfect as possible before we do that. Certainly, past the start of production. If we give a car that maybe has some bugs in it and a journalist is free to write whatever they write, they would presumably write about a few issues. There's no point in doing that if those expect to be cleared up within four or five weeks. We will wait until probably the end of June before doing any journalist reviews.

Got you. Certainly. Maybe one for Deepak, just on the modeling side. It sounds like with some of the tooling coming in late and the characteristics of low volume production when you are ramping up, you are going to probably be using components manufactured with pre-production tooling, and if you do it right, obviously, it doesn't impact the quality but it impacts the cost.

Can you tell us a little bit about how you expect your material costs to trend, as you ramp up, and when you think they can come down once you have the volume behind you to help you had that 25% gross margin target?

Sure. As we have said, the 25% target is when we achieved our annualized 20,000 units of production since they delivered an overhead component as well to it. That would be sometime late this year and on a full-quarter basis we will get closer to that in Q1 of next year. Initially, at this point, primarily in Q2 as you said, there could be a variety of reasons why an initial pricing from suppliers could be low.

It's just a mere fact that they have low volumes. Prices will be high, sorry. Just a mere fact that they have low volumes in some cases can result in higher prices. That is being factored in our financial assumptions. Most of Q2 expenses will be in R&D for those issues. That is why we also provided the guidance of our increased R&D expense in Q2.

To be clear, we are all, I think we agree at this point, increasingly confident of achieving 25% gross margin for 2013.

Okay. Terrific. Very helpful. Thank you.

Our next question comes from Colin Rusch from ThinkEquity. Your line is open.

Thanks so much. Can you talk about the cycle time right now in terms of car production? How many more iterations of the manufacturing process do expect to go through before you start shipping cars? I should say the Model S in specific.

I'm not sure what you mean by cycle time on the reproducing cars at a very slow pace, at this point. Perhaps you can clarify that?

I'm just asking how long does it take, you are running test cars through there, assuming, now. I mean is it taking two weeks, is it taking a full month? How many iterations on the those process refinements do you think you'll go through before you really lock them in?

I think we're going to keep iterating for the next four or five weeks. Even after we start production, I think there's going to be room for improvement on the car. As there is with any product. I don't think we will ever stop iterating on improvements of the vehicle. But, we are really down to very small refinements, at this point.

These are nuance issues of fit and finish, and rattle, squeak, the fine tuning of the stereo system and that kind of thing. Not major stuff, really. But, I want to be really attentive to the details. I don't want -- I want the Model S to be right all the way down to the smallest detail. That's what we are dealing with right now, going to a very tiny level detail level.

Great, and can you talk a little bit about the cost reduction for the battery packs? How much do you think you can improve power performance through further controls as opposed to improvements on the battery itself? What is the timeline for making those sorts of improvements?

In increasing the charge per kilowatt per hour or the range? I think, if we wanted to, right now we could build a pack with 500 miles range. It just doesn't seem to us that people would necessarily -- that most people wouldn't really have a need or want for that. So it's better to use that space for cargo capacity or other things. The bigger focus over time will be improving the cost per kilowatt hour battery pack. Improving both the non-cell cost and the cell cost.

We're pretty comfortable with where we are in terms of achieving the 25% gross margin next year. So, we have a pretty good idea of how to get there. And then over time, we will continue to see both the cell and non-cell pack cost decrease. Historically, it has been at roughly the 8% to 10% per year rate, not necessarily a smooth thing, but it's been that average over time. It looks like things will continue to improve at around that rate in the future.

Thank you so much.

Our next question comes from the line of Adam Jonas from Morgan Stanley. Your line is open.

A couple questions. First, I appreciate that you won't disclose more reservations ongoing on the Model X. I think that is a wise decision to focus the attention on the S. But, will you continue to publish the balance sheet item and reservation payment? And if you do, will that balance still include Model X reservations payments, as well? That is my first question.

Adam, yes, it will. We will have to report that on our balance sheet.

Yes, obviously, if we show Model S reservations show the total balance sheet number, it won't be super hard to figure out what the Model X. reservation number is. But, we don't want to call attention to something when our focus is very much on the S.

Understood. But it may raise some questions like my next one which is -- if you look at that ratio of the cumulative reservation balance over the reservation number, to get a ratio, that ratio did decline materially from 4Q from the end of December to the end of March around 11,500 about 10,500, implying an incremental reservation amount on incremental reservation number declined a bit sharper than that. Is there anything to read into that?

Is that because the Model X reservation amounts are just a much lower per unit or are we seeing the incremental -- now at the first, your VIPs, super high net worth folks that maybe were higher up on the reservation list getting the performance packages, is it reflecting more of the mass-market buyer, now, if you can call it that, for the Model S incremental reservation?

That's a good, good question, Adam. A driver is we received far fewer -- we receive more general reservations, not signature reservations. As he may recall, we basically completed or sold out all of our signature series cars in early January. And deposit of the reservation amount for signature series cars is $40,000, versus $5,000 for general production. Clearly, in Q4, that's when a big chunk of the last signature reservations came in and that resulted in that higher average reservations amount.

Great. Next question is on the -- your Model S delivery target, moving it up into June. But yet you're still providing the revenue guidance of roughly stable at $30 million at the group level. That would imply, if I'm correct, this is a very small number of deliveries that you are going to be making in Q2. I mention that because I am presumably most people on the call have Tesla models have probably zero deliveries in the second quarter right now.

So, are we talking about a handful, 10, 20, 30, that order of magnitude? It doesn't seem like it could be much more than that if you're going to be near the $30 million revenue mark.

Yes, it's on that order, yes. It's not like, it's not one and it's not hundreds. It's sort of in the tens.

I just want to confirm that, thanks Elon. And then finally, given the pull forward, the good time frame of the launch timing, the very positive reception of Model X. Your ability to show and accelerate perhaps key developments for the Gen 3 a few years out. Have you given any further thought to potentially using an opportunity to raise a bit more capital to help fund these projects that really deserve, probably, more resources, or could deserve more resources given the great interest in your early execution on them? That's my last question. Thank you.

Thank you. Our next question comes from Carter Driscoll from CapStone Investments. Your line is open.

Good afternoon, gentlemen. I guess I just want to follow up on the reservation question. Just a little differently. I was talking to some of the stores and some of the sales people and I've talked about maybe multiple orders from individuals and maybe, some that actually exceeded multiple orders.

And maybe that effect is positive or negative in terms of your positioning the car, and then also, maybe some people have been rumored to be potentially reselling the car or flipping the car. Whether that might have a minor impact or not at all? Maybe could address that for me first?

Participants, please hold on for a moment. We are having technical difficulties. Ladies and gentlemen, thank you for holding. Please stand by. Ladies and gentlemen, thank you for holding. Please stand by Thank you, please go ahead

Sorry about that everyone. Why don't we pick it up with Adam Jonas' last question, please? Adam, if you're on the line, do you want to repeat that, please?

Pardon me, Adam Jonas, can you please queue back up? We currently have Carter Driscoll's line open from CapStone.

Why don't we take Carter's question and then we'll come back to Adam.

Thanks for taking my question. I just want to follow up on the Model S reservations question. Talking to some of the stores, I heard a certain comments that maybe certain individuals had ordered multiple or put down multiple reservations in the chance of potentially flipping the car. Is that at all a concern? Have your heard similar things from some of your -- some feedback from your sales people?

There's been a few mentions of that. The quantity is so minimal that it is not an issue. There have been a couple issues on -- there's been a couple inputs on our web form as well on the subject. But it is so few and far between that it is not an issue.

Okay. And then just moving over quickly just a question on the Daimler agreement. In your prepared remarks you alluded to that potentially outpacing all the other development contracts you had before. Has the automobile moved from the prototype into early stage production? Maybe you could shed some color on where that is progressing right now.

It's effectively early stage production, although, in terms of cars that we would be prepared to deliver to customers, those would occur next month.

Okay. Thank you for that. That's all I have.

I'm sorry, so with respect to Daimler, I know, my apologies for any misinterpreting context there. We certainly delivered many Electric Smart battery packs and chargers in Mercedes A class, but we've not yet delivered anything for the new program beyond the initial prototype level.

Therefore the prepared comments about it potentially exceeding your other development contracts, is that based on their market position globally? Is it based on discussions you've had before? I guess, having seen the RAV4 hit essentially the push this week, and we're getting a picture of that, what makes it comfortable that it's going to exceed all your other development contracts if the vehicle is not out of the prototype stage?

Well, the nature of the agreement is in excess of everything combined to date. So, that is the plan, essentially. That is what we are gearing up to do with Daimler.

Is this the last -- not to push it too hard, but is that -- do you expect something in the back half of this year? Or is it really just all the focus on the Model S today?

Our primary focus really is on the Model S, but we certainly expect to make material progress on the new electric Mercedes Benz later this year. Production delivery in terms of our customers would see is essentially in the early 2014 time frame.

Okay. I appreciate the color. Thank you.

Thank you. We do have a question from Adam Jonas. Your line is open.

Thanks for taking a follow-up. You mentioned that the Model S has now been fully certified by the US Environmental Protection Agency and the State of California. But, unless I missed it in the release, I didn't see the disclosure of what the mileage was going to be. Presumably when this goes on sale and initial deliveries are in June, unless I'm mistaken, won't it have to have a sticker with the combined fuel economy?

Yes. Are you talking about the MPG rating?

Exactly.

And the range I think is what -- (multiple speakers)

I'm not sure if you had a chance to see the range blog we published earlier today. But, as far as the EPA fuel economy rating, we are expecting it to be at least -- initially it will be 89 mpg, although we think we might be able to improve that with some efficiency improvements at the charger level, because it's measuring the a/c watt hours in -- so I think those -- we're not going to promise anything but we think there's more room for improvement there. But the current official rating is 89 mpg. Then, on the two-cycle test we have 320 miles and on the five-cycle test, 265.

Can you repeat those, please?

On the two-cycle test 320 miles, so it's actually 20 miles above our target. On the five-cycle test, which is a much more intense test, where the car can sometimes go -- it goes up to 80 miles an hour type of thing. That is 265-mile range.

Excellent. And you only release it for the largest battery size?

Correct. All initial deliveries are for the largest battery size.

Okay.

And I just want to mention everyone should go check out our website blog. You will see a very thorough letter from Elon and JB Straubel, our CTO, that explains a lot of the details and some of the numbers behind that. It's interesting reading.

Thank you.

We'll have an exciting thing to announce later this year regarding long-distance travel with the Model S. Sometime, probably, in the July-ish time frame. It's going to be pretty cool.

Great. Thanks Elon.

Our next question comes from Dan Galves from Deutsche Bank. Your line is open.

Hey, good afternoon. You guys mentioned that there was still some stamping dies to be delivered next month. Are you comfortable with all your suppliers in terms of them being able to supply production parts in time for the launch?

Yes. We are highly confident of that.

Okay. Got it. In terms of the Tesla stores and service centers, can you give us an update on how many you feel like you need to support global sales of the Model S and the Model X? Clearly, by owning your own stores, you guys are capturing a lot of the margin that is usually taken by franchise dealers. But, do you have an estimate for what percentage of sales the Tesla store and service center costs will represent as a percentage of your revenue over time?

Dan, to answer your earlier question, we expect to have close to 30 stores by the end of this year. As we look at next year and growth of Model X in 2014, we will be somewhere north of 50 stores at that time. We think, globally, that gives us enough capacity and throughput in the stores to sell projected volumes of Model S and X as we have shared externally so far.

We certainly have a sense of our percentage of revenue for these stores; it's part of our SG&A expenses. We don't necessarily split that out but, I can tell you that we find that we are very efficient in our selling, as compared to the typical dealership model. That is something we absolutely track.

We'd don't have a national advertising spend. It's zero. At some point, we will want to do that. But, probably not for the first few years, at least. Right now, demand outstrips supply. We need to improve supply. That's our focus.

Okay. Thanks very much for that. Can you give us an update on when you expect to begin sales in Europe of the Model S? Not sure if you have announced pricing for the European vehicle -- but when would that be, if you haven't already?

Sure. We expect to start delivery in Europe early next year. We have not yet announced final pricing for Europe. It's going to be sensible pricing compared to what's in the US. It will be a little higher, to account for exchange rate variations and the logistic cost of bringing things to Europe and the import duties and what not. But, it will be, otherwise, quite similar to our US pricing.

Got you. There are certain countries in Europe that the tax regimes are very favorable to EVs. Is there any opportunity to take advantage of that a bit by selling the car higher, or do you think the pricing will be consistent across Europe?

It's important to do the right thing for customers. If they think we are taking advantage of them through lower tax rates, I think that would be very bad. But we are going to have really great sales in a lot of those countries. We are huge in Norway. In fact I have to visit Norway at some point. We actually have a phenomenal customer base in Norway. And in places like Switzerland, the Netherlands, Denmark --

The Scandinavian countries are really strong on the incentives. The customers have responded very positively both for Roadster and for Model S and Model X.

I think London is going to be a very strong market, as well. There is no congestion -- you don't pay congestion fee if you have an electric car. The city is taking a lot of steps to install access to electricity for electric vehicles for charging. But, at any rate, from a pricing standpoint. We will probably see a slight premium in Europe. But, we don't want to try to push to get a lot of premium in Europe. I think that would be -- send the wrong message to customers.

That makes sense. Thanks very much.

Our next question comes from Ben Schuman from Pacific Crest. Your line is open.

Hi, guys, thanks for taking my call. Maybe, Elon, can you discuss how you divide your time these days between Tesla, Space X and Solar City with all three companies approaching such critical events and milestones?

Yes, it is intense right now, I have to admit. I'm not getting a lot of sleep. My time is generally, on average, split roughly 50/50 between Tesla and Space X. And then Solar City is less than one day a month. That doesn't take much time at all. Credit for Solar City really goes to Lyndon and Peter Rive who are doing an awesome job running a company. And I think it's going to have just an outstanding IPO later this year. I don't think most people realize how good it's going to be. It's going to be really good.

Yes. Basically, I am on e-mail a lot. I think I am primarily an e-mail processing device. That is really helpful to run both companies simultaneously. And then when I'm with my kids, when they don't need my direct attention, then I'm on e-mail as well. That's kind of how it works.

All right, great, thanks. An then, with the Toyota announcement, given the size of the production contract we get to about 38,000 Tesla content per vehicle. You mentioned in the shareholder letter that the Mercedes powertrain cost can be low enough on higher volumes to get a higher-volume vehicle. Can you walk through the steps there? Is it all just pure economy to scale or is there some additional cost reduction that you can point to?

Ben, just want to clarify a certain point. It's very tempting to take the approximations that you just did of $100 million deal versus the volumes announced to come up with $38,000, It's a simple math, but I have to say it's very imprecise and not very useful. There are many elements to our transaction with Toyota in addition to volume. We have partnership with them on ongoing training and support and service and warranty and a few other things. The analysis of cost that you mentioned is not that straightforward on a per unit basis.

Furthermore, for confidentiality reasons, as you can imagine, we can't share with you the price itself of the powertrain and the underlying cost to us. So, I want to clarify that. And, also keep in mind that the volumes we're talking here on the Toyota program are far lower. And there is an inherent design inefficiency, when you are trying to develop a powertrain and make it fit in an internal combustion engine vehicle.

It doesn't give us those cost savings that we get inherently from the Model S platform. When we look at the higher volumes, for the Daimler program, there are huge economies of scale and other design factors that help us out.

Yes. Just to be clear, the economy scale is the single biggest driver of cost reduction. I think first it's an approximation, if you scale and production by a factor of 10, your costs will generally drop by half. That's a good generalization, I think. So, that is where most of the cost savings is coming from.

And then there will obviously be continued design improvements as we figure out how to achieve the same end goal in a smarter way. Those are the two drivers of mass market, of technology getting to mass market which is continued iteration on the design and economies of scale. That is generally true for any technology.

Great. Thanks for the help on the math, there That is very helpful.

Our next call comes from Jesse Pichel from Jefferies. Your line is open

Yes. Good evening gentlemen. I'd like to ask about the Daimler drivetrains. In your letter you allude to tremendous volumes. Can these volumes be large enough to change the cost structure of the S drivetrains? Was a contract of this magnitude factored into your 25% margin guide?

With respect to the margin, that is not really -- we're talking about the 25% gross margin, were talking about the Model S. Just by itself. So, no, that's not been factored in. I think economies of scale is helpful. There does need to be some commonality to achieve those economies of scale. There will be some amount of commonality so, I guess it would probably be of some help to the Model S costs to add the Daimler volume in there. It's not directly additive but I think it's at least partially additive to the economies of scale.

There has been a lot of chatter in the media about the Tesla battery pack showing up in solar projects. Do you think that solar could be a driver of your -- a significant driver of your battery sales in the future?

I don't think we want to show all of our cards right now. But I think there is some interesting potential in that direction. Maybe in partnership with a certain solar company.

When investors are thinking about what it takes for EVs to really penetrate the market, we always come back to the charging infrastructure buildout. Do you think you could give us some color on how you see this build out occurring? Along key corridors? Where are we in the buildout? What are you doing to accelerate the buildout? What business models do you see emerging?

I think we are going to have a very exciting announcement on the charging front in the July time frame, I alluded to earlier. I don't want to release details of that, quite yet. But, I think it's really going to -- the light bulb is going to turn on when people see that. It's pretty awesome. I think it's really going to put in the missing piece of the puzzle. Now is not quite the right time to talk about it.

That's what I was hoping to get. I have one more question. You talk about Norway, but you missed the big -- perhaps the biggest market for EVs, which is China. What kind of interest are you getting from China, either for store or for a drivetrain?

Was certainly see China as a very important market. We are hoping to begin sales in China towards the end of next year. There is a lot of variables in there. With regard to approvals from the Chinese authorities. Our aspiration would be to begin sales there in the latter half of next year. It's an important market. We are not currently in a discussion for any powertrain supply deals to companies within China, but that's, I suppose, a possibility in the long term. In the short term, we are very focused on our partnerships with Daimler and Toyota.

Thank you, gentlemen.

Our next question comes from Andrea James from Dougherty and Company. Your line is open

Thanks for taking my question. I'm trying to gauge the opportunity in the Daimler partnership, if you look at all the powertrain agreements signed in Tesla history, it's about $140 million in agreements. Is that about right? Are we talking about a Mercedes contract value that is an order of magnitude greater than that or just simply greater?

Yes, the $140 million is probably what's partially in our financial statement, Andrea. There is a little bit more to it as well as our existing Toyota agreement which is not in our financials as it will happen over the next few years. So our number is north of that, roughly in the $280 million or so million range. In terms of the Daimler contract, it's north of that, how much, I think it's probably best to just wait until we mature or get to that level and talk beyond. But we wanted to still give you some sense of scale by providing that guidance.

Thank you.

There is certainly the possibility for it to lead to something that is an order of magnitude greater but we need to get things -- we reach one level after another. The question of proving ourselves at each successive level. Which we have been able to do thus far. But, we need to keep doing that in order to progress to, essentially, the next level.

Okay. And then R&D in Q3, do you look at that as roughly about half of Q2, because some of that shifts up into COGS?

A lot will shift into COGS. I think half is probably a bit on the high side. In terms of half reduction, I mean. So, it all depends and there's some accounting implications here that we need to sort out as to what costs can turn into COGS and what time versus in R&D. We will provide you better guidance when we do the Q2 call and go into Q3 specifically.

Okay. And then just raising the lower end of your guidance by the $10 million there on the earlier deliveries. What exactly -- can you just go over what exactly is in the guidance range, again? And what about the early delivery helps you to feel more confident on the lower end?

The think its a measure of the slightly higher confidence that we have in achieving our numbers that enabled us to narrow the range.

Okay. Thank you.

(Operator Instructions).

Our next question comes from Michael Lew from Needham. Your line is open.

Thanks and good afternoon. On the last call, you mentioned that you were thinking about a mainstream offering for Gen 3 instead of an updated roadster. Do you have any update on your thought process, there, like to what type of market signs you're looking for?

It's very aspirational, at this point, because our attention is focused on the Model S. And our key powertrain partners, Toyota and Daimler. So, I mean, it's late 2015 would be the earliest. For 2016 is probably most likely. Something like that.

Got it. Okay. Also, on the RAV4 electric, are you providing multiple versions of a battery pack as Toyota had stated a100-mile range and you have highlighted in the shareholders letter that you are providing a range of 170 miles?

I think there was, unfortunately the way that the information was communicated was a little confusing. There is actually only this one battery pack. The range is actually, if you were comparing today to what the Leaf 100-mile range is, which is city driving, that compares to the 170-mile number for the RAV4 or 165, 165 or 170 miles. If you look at the Leaf, five-cycle test, that range is around the 70 to 75 mile number, I believe. Around maybe 71 or 73. We think it's probably 73.

So, when comparing to the five-cycle range, the RAV4 range is around 105 miles. So, in both cases it's -- in any given range scenario -- the RAV4 is about 60% more range than a Leaf. I think where you were a bit confused was comparing the Leaf's city range to the RAV4's five-cycle range. Which is not apples-to-apples, obviously.

Okay. I was trying to reconcile the 100 from Toyota and your 170. I was a little bit confused. That's a big 70 mile delta, unless Toyota is talking about 100 miles strictly highway driving but still that is a nice 70 mile increment on the city side.

I'm sorry, could you repeat the question?

Toyota had stated 100 miles and you're at 170 for the RAV4. There's a 70-mile delta, there. I guess -- well maybe Toyota is mentioning highway driving versus city driving.

What Toyota's referring to there is what's called the five cycle -- it's an extremely arduous range. It's at least 100 miles. Actually, depending on the configuration pockets at least 105 miles, and may be as high as 120 miles. If you are to compare that to the Leaf, you would compare to the Leaf's five cycle range which is 73 miles.

Okay. I get that. And then, one more--

What happened in the media was people were looking at the Leaf's city range of 100 miles, and comparing that to the RAV4's five-cycle range and those are not comparable numbers. That's where you -- it makes more sense to compare it to the almost 170-mile range for the RAV4.

I agree. And also, one last question. You mentioned a high-- earlier you mentioned a high conversion rate for the Model S sign-ups to reservations. Have you seen any signs of, let's say cannibalization for Model X, since those that are on the wait list for the S may just choose to switch over if they can get on the Model X a little bit earlier?

Well, the Model X deliveries will be really -- if you put down a deposit on the Model X, you're going to get the car in almost two years, maybe 22 months, that kind of thing. You are getting a car in Q2 of 2014, if you put down a deposit for the Model X. Whereas, you getting a car in Q2 of next year if you put down a deposit on the Model S, so there's about a year advantage there.

We'll see how deposits track. I think it will remain true that you be able to get the Model S a lot sooner than a Model X for quite some time.

Okay. I misunderstood. I thought they would be rolling out late in 2013. Thank you.

In very tiny numbers. It's possible. But, if you put down a deposit, now, you're really going to get your car in about 22 months-ish. That's overly precise. Figure it at approximately two years.

I appreciate that.

Patrick, we probably only have time for one more question.

Our last question comes from the line of Ben Rose from Battle Road Research. Your line is open.

Good afternoon, gentlemen. Just a question from the shareholder letter, you say quote, selected cars are independently purchased and crash tested by the NHTSA. Do know whether the Model S will be one of those cars? And if so, when?

It will definitely be one of those cars. I am not sure -- in fact I'm not sure if they actually tell us exactly when they do it. Because, I think that they just buy the cars secretly and we don't actually know where they are in the queue.

But you would be surprised if they didn't issue a crash safety test rating by say August or September?

Honestly, I don't know. But, we do feel that we are very confident that when they do test the car, it will be at the five-star safety rating level. In fact, I think the Model S is, in my opinion, will be the safest car on the road. We have certain architectural advantages that other cars don't have like a much longer crumple zone in the front because we don't have a big engine block that we've got to deal with.

A sidewall intrusion is, we think will probably be the lowest of any sedan. And our rear crash performance is definitely going to be better than any sedan. Because we are protecting for the third-row occupants. For the rear impact, the car is designed to not just take a highway speed impact in the rear, but able to take a highway speed impact on half the car. That's an important threshold for safety for the third-row seats. It has very good rollover protection. I really think this is going to the safest car on the road.

Okay. Thanks very much. I appreciate it.

Thank you everyone for joining us today on the call. We look forward to talking with you next quarter. We will also be attending a couple conferences in the month of May. Including the Deutsche Bank Clean Tech conference next week. Thank you everyone. Have a great day.

Ladies and gentlemen thanks for participating in today's program. This concludes the program. You may all disconnect.