特斯拉 (TSLA) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Tesla Motors fourth quarter 2012 financial results Q&A call. 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. As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mr. Jeff Evanson. Please go ahead.

Think you Patrick, and good afternoon everyone.

Welcome to Tesla Motors' fourth quarter financial results question-and-answer conference call. I am 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 2012 shortly after the close of the market today. The shareholder letter, financial results, and webcast of this Q&A session are all available at our Investor Relations website at ir.teslamotors.com. Today's call is for your questions, and we would like to keep the call to 45 minutes today. We will conduct the Q&A session live.

(Caller Instructions)

I would like you to try to limit your questions to one question plus one follow-up question. During the course of this call, we may discuss our business outlook and make forward-looking statements. Such statements are 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 10-Q filed with the SEC. Such forward-looking statements represent our views as of today, and should not be relied upon after today. We also disclaim any obligation to update these forward-looking statements.

And now Patrick, could we please have the first question?

Ben Kallo from Baird.

Thanks for taking my question. I think one of the things that investors will be focused on is the amount of churn. Could you guys just talk about where you are seeing that churn, and then how much time you think it takes for it to level off?

Yes. I mean, I think you may be referring to -- I think there have been some articles about Tesla wait time is reduced to a month? Is that maybe what you are referring to?

Yes, we can tie that in there too, because I have heard this argument out there, that you call the store, they say that I can get my car in a month, or 45 days. So maybe you can tie that into also, and having the record level of reservations, but then having kind of some people opt out of or take their money back, their deposit back.

Yes, absolutely. I think there some articles out there that don't really accurately describe the situation. The average wait time now for a car is about five months. However, there are some configurations which are available in more like maybe six to eight weeks, which are the very high-end reservations. But it should be pointed out, like, that we are also talking about an average wait time that is on the order of five months. And in fact, if we were to close all of our stores right now, worldwide, and not have any product specialists or salespeople, we would still sell out through the year. So that's maybe an important thing that people don't quite appreciate.

I guess, If you could just elaborate on how you're seeing demand pick up in other places outside North America, and what we should expect as the year progresses there. Then I will jump back in queue.

Yes, absolutely. Right now, we have really done almost no Model S sales in Asia, and we have done very limited amounts in Europe. In fact, we only have two cars in all of Europe. That's going to change dramatically in the next few months, and we're going to start marketing heavily in Europe, and then start doing the same in Asia. We feel very confident of achieving a demand level in excess of 20,000 units a year. And, I mean, I think we will see quite a bit larger than that number as we expand to Asia and Europe and actually start marketing there. George Blakenship, here with me, George, do you want to add anything to that?

Yes. We had a press event preview in Europe at the end of October, and that it was received very, very well. At this point, the interesting thing about Europe is that we are getting a nice response in reservations, and we don't even have any display cars there yet. We will over the next couple of months. As Elon said, we will be actually sending display cars over. But right now we are still transitioning out of Roadster and into Model S in the stores without even display cars and still having a nice pickup in European reservations. As far as Asia goes, it's announced, we've announced previously that we're opening in China our first store later in the spring, and we expect a real positive results there. And we're just now starting to show Model S in Asia in Hong Kong and Japan, with stores planned for there in the latter part of this year. We really haven't started actually displaying our car to customers hardly at all anywhere outside of North America, yet about 25% of our reservations are outside North America. So, and in North America, you probably saw in Q4, in our stores in North America, we had 1.6 million people go through the stores just in Q4. So that's still -- it is wintertime so don't have as much traffic as you do at Christmas, but we expect to have a really nice increase in traffic in our North America store this year. The stores are working.

Thanks guys. Congrats on the progress throughout 2012.

Ben Schuman from Pacific Crest Securities.

Hi guys, thanks. Can you give us any idea of what the regulatory credit revenue was in Q4?

Deepak, do want to comment on that?

No, I think for us, the way we look at regulatory credit is that it's great to get that, it's a positive stream of revenue, but it's unpredictable, and as we look forward, we are much more focused on getting to profitability and achieving our targets without the benefit of the regulatory credits.

Yes, exactly. And in fact, maybe to just clarify it further. As people may recall, there were three firm things that I promised we would do. That we would start production last year, earlier than July, and we started in June; that we will get to 20,000 units a year; and that -- I'm sorry, that we would deliver 20,000 units in 2013; and that by the end of 2013 we would exceed 25% gross margin. And I want to be clear that, that 25% does not include regulatory credits.

Okay, great. And then can you maybe give us an update on the quality control situation? Just in terms of what percentage of the cars are still getting some sort of post-production touch-up work?

We actually don't have those figures handy. Wasn't expecting that question. It has dropped dramatically.

I think the ability for us to produce cars at a steady rate of 400-plus a week is very much linked to our ability to produce quality cars on the line. And so those go hand-in-hand, and it has continued to improve significant.

Yes, there was a time several months ago where every car that came off the line would require some degree of rectification, but now that is a fairly small percentage. I don't know the exact percentage on hand, but it's a fairly small percentage. The other thing that's also worth noting is that anything which is software-related can be addressed by an over-the-air update, which is something that no other car company can do, and I think that's actually worked quite well.

Great, thanks guys.

Thank you.

Patrick Archambault from Goldman Sachs.

Great. Thank you very much. I guess my first question is, just given what you have said, when you're looking at net reservations, I think you said cancellations were going to be similar to what you saw in Q4. Production, you have obviously the guidance of 4500. Obviously, dependent on sort of what you do in terms of reservations during the quarter, but it sounds like that net reservation number is probably going to grind down a little bit in Q1, maybe even Q2, before it is kind of peaking up again. And is that correct? And sort of how do think about the trajectory of that overall net reservation number for this year?

Sure. Well, our intention is really not to have people wait six months for a car. We much prefer that our demand, generation, and production are closely synched, so that you order a car, you get it in less than a month, really. You'd ideally want to get a car within maybe a few weeks, or something like that. So it's not our intent to have a long waiting list. I think that's pretty inconvenient for people. The limitation on production, I mean where we said we think we can do at least 4500 this quarter, that is not in any way a demand, just to be clear, in any way a demand-related thing. That is purely a function of us being able to do steady-state production and do so efficiently. Our focus in Q1 is on production efficiency, improving gross margin, and making sure customers are really happy when they receive their car. It's important for us, I think, to operate at that steady state for a bit before we try to drive the number higher. But I do want to emphasize, we are not demand constrained. We are intentionally production constrained. Yes, That's, I think, a really important consideration, yes.

Thanks, that is helpful color. If I can just squeeze one quick one in for Deepak. On cash flow, I think you said Q1 would be break-even. Can you help us, from a modeling standpoint, think about the cash flow cadence as we're working through 2013? When is it that you would expect to move to positive? Understanding that there is obviously some seasonality elements to the production and working capital and what-have-you.

Patrick, our focus, as Elon indicated, is on a variety of cost reduction and operations stabilization projects, which are all going to help us continue to generate more cash from the operations as each quarter goes by. Not sure if I can give you any further guidance beyond that. We feel very comfortable where we are as we look at our cash flows from operations. So I think we are in a good place.

Yes. Okay, but there will be -- it will swing to positive during the year? I guess, would that be the --

Of course.

Absolutely.

And I think the key focus here is that we are starting the quarter and 2013 here being profitable, and then we just continue to grow on that.

Yes. I mean, I think it starts with emphasizing this point, which is we really have very high confidence that we will have a profitable first quarter. And this is only the very first quarter that we actually have been at our target production rate. So we've had very little time to work on production efficiencies, improvements to gross margin, and all that. And despite all that, due to an enormous amount of hard work by a really dedicated group of people at Tesla, we're going to be profitable. And I think that's a pretty big deal. That's really an enormous amount of blood, sweat, and tears to get there. It really can't -- it would be difficult for me to overstate the level of difficulty. But we are going to do it. And I that's, I think -- so we're really proud of that, and I feel like we're halfway through the first quarter, and we can say that we are confident.

Great. Thanks a lot guys.

Adam Jonas from Morgan Stanley.

Good evening. This is EJ in for Adam. Could we step through your 1Q guidance for a bit? Given your guidance for 4500 deliveries, mid-teen gross margins, and that you're calling for a 15% reduction in R&D versus 4Q, and for SG&A to increase moderately, I'm having a bit of trouble getting to the slightly positive net income on a non-GAAP basis. Is there any re-bucketing of R&D cost going on? Or are there other significant developmental service revenue that we are missing here?

I think if you consider the combination of [more or less sales], or powertrain sales, or development revenue, and mid-teens gross margin, I think the guidance would probably lead you to somewhere along those lines close to something in the break-even range to slightly positive, should be close to break-even, and we were hoping to beat that.

Okay, so there's not really any re-bucketing of R&D going on?

No.

Okay.

We're not playing accounting games, and this is very much a function of Model S, not other things.

Got it. Switching gears to CapEx for second. I think you guys have previously expected about $240 million of CapEx for full-year 2012, but ended up, I think, a little over $270 million. Is that something that you pulled forward from 2013, or is there something structurally that we should be looking out for here?

We had some amount of pull-ahead of completion of production tooling, and completion of some of our equipment in-house, which resulted in higher CapEx, as well as some of the infrastructure of the store and IT infrastructure. Overall, I think it was a bit of a pull-ahead, but it's not surprising in the end.

Okay, great. Thanks very much.

Aaron Chew from Maxim Group.

Good afternoon guys. Thanks for the question. Wondering if you could drill a little bit deeper into the slower pace of reservations in gen, and set the date following the price hike going into effect at year-end. Is it safe to say what you are saying is, it's down from December but still over the October/November levels? Maybe just given the big jump from 3Q to 4Q, if you could highlight if it's pacing above 3Q and below 4Q, or where you at what a little bit more in detail.

Actually, I'm not sure I recall offhand what our third quarter numbers were. I think, Aaron (multiple speakers) The key point to bear in mind, as I mentioned earlier, is we have enough reservations right now to fill out the year. With maybe -- and just on sheer momentum, sell every car we make, even if we closed every store we've got. There were certainly cancellations in January that were a function of asking people to confirm. So we're trying to clean out basically anyone who wasn't serious about buying a car. But I don't think those are indicative of demand for the rest of the year. If you -- okay, sorry. George just confirmed, yes. It is definitely higher than Q3.

Okay.

If you exclude the sort of reservations that were -- the cancellations that were just as a function of asking people to confirm their order or not, we have a lot of demand in North America. I would say well in excess of 0.5 of our 20,000 unit per year demand, or production target. So you may have heard me say this before, but where I think kind of demand breaks down between Asia, North America, and Europe is something like 10 to 15 in North America, probably 10 in Europe and maybe 10 to 15 in Asia. But it will take us some time to build up Asia, particularly China.

It doesn't really affect, I think, this year all that much. I am quite certain that we will flip it more than 20,000 cars this year. And that's not really a concern. Like I said, literally we could say goodbye to every store and every sales person and still meet that target. But we want to make sure that we have laid the groundwork for an improvement above 20,000 units a year in 2014. So as we're thinking about demand generation, it's really not about this year. It's about how do we exceed the 20,000 unit number next year.

Okay, excellent, and then if I could shift real quick to the production side. Now that you have fully reached your target rate of production for the 20,000 pace, just wondering if you have been able to identify sort of how much flex you may have in that on a weekly basis, I mean, especially if you are thinking of 4500 in 1Q. Is up to 425 potentially, 450, or is there a way you can maybe quantify that, just so we can understand how you are able to meet that 20,000 sort of in the back half?

Yes. I think our production rate will be in excess of 20,000 unit a year annualized rate in the second half of the year. For this quarter and for probably most of next quarter, you have to decide what the relative focus is, and I think the important thing for us to focus on right now is production efficiency and improving gross margin rather than scaling up production. And right now we've got a pretty large number of temporary workers, and that they're essentially were hired to deal with manufacturing inefficiencies. And it is really important that we improve the manufacturing efficiency and can reduce the number of temps, essentially.

We should expect to see an increase in fulltime employees from beginning quarter to end of quarter. It's real important that we make some progress, significant progress, in reducing the size of the temporary labor force, and addressing the manufacturing inefficiencies. In any company, you've got to focus on what is important at any one time, and production efficiency is the thing to. If we wanted to, we could raise production right now to 500 units a week. That's probably what we could do right now. It would do so at the expense of efficiency, and we have a lot of overtime and that kind of thing. Right now it's really just focus on efficiency, at the risk of being repetitive, sorry.

All right, very helpful. Thanks so much for the question.

Amir Rozwadowski from Barclays.

Just following up on that question of focus Elon. Is really sort of optimizing your workforce the primary barrier to getting to that 25% gross margin target, given that you are relatively a stone's throw away from sort of your optimal production rate?

There are a number of things. I mean, actually generally speaking, but the car business is a pretty cost-efficient business. I mean, it may not be great at a lot of things, sort of breakthrough technology and that kind of thing, but it's pretty good at cost optimization. So in order for us to be competitive, it takes a lot of work on all fronts. Certainly reducing the labor hours and the amount of overtime. I mean, in December, even though we were cash flow positive, it sort of comfortable on a per car basis when all things are considered. The amount of overtime that was required to achieve the 400 cars per week was pretty extreme. That has improved dramatically just coming into January and then February.

We've gone from, I think it was an average of over 60 hours a week, almost 70 hours a week in December. Yes, exactly. It was somewhere between 50% and 70% above 40 hours. In other words, it was like an average 68-hour week that people worked in December, which is also a tough thing for people to sustain, it's a sort of burnout level. But it also drives the cost to a pretty extreme level, because above 60 hours a week, you are actually in double-time. Above 40 hours a week, you're in overtime. So now we have gone to, down to the point where we're at maybe a 50-hour week. So from something like, I said, something like almost a 70-hour week average in December to about a 50-hour week now, and then driving that to kind of the mid-40s in March. In addition to reducing the total number of people needed to get the car.

So the labor hours per car are dropping dramatically. That maybe the single biggest factor, but close behind it are things like logistics and supply parts. Another thing that we had to do that was really inefficient in fourth quarter was we had to fly a lot of stuff, and when you fly something, it can cost as much as 10 times what it cost to ship it by sea or rail or truck. [particularly] if it's heavy. So we have to do some pretty dumb things like fly tires from the Czech Republic. I kid you not. That was one of the -- I wanted to punch myself in the face for that one. At the risk of fooling around, I will just give you a little anecdote. They're are 100 things like this.

As it turns out, we have a supplier for the 21-inch tires that is in the Czech Republic, and it was taking -- we have 30-day payment terms with them. And when they were shipping the tires, it actually took longer than 30 days to get to us. So the tires would get to us, and it would be past due. So that happened a number of months, and then they put a hold on the shipments because we hadn't paid on time, even though we weren't getting the tires before we were getting the bill. They put the hold on that, and anyway. So that was just a big [catastrophe] that we had to fly a bunch of tires from the Czech Republic just to keep production going. That'll give you one sort of extreme example of how logistics can actually go bonkers. That's also dropped dramatically in the first quarter.

And then in terms of supplied parts, as I mentioned, there's a huge number of supplier cost reductions taking place, because just as we have inefficiencies, so do our suppliers. One of the biggest challenges we actually had, and I don't mean to unload on you guys who are on the call. But the industry estimates for the number of cars that we make were quite low. So for example, there's an organization called HIS, which does industry estimates on production volumes. They had us down at 1500 units a year. For a number of our suppliers, when -- they didn't look at our forecast, they looked at the HIS forecast, and they didn't believe our forecast.

So they tooled up for some puny number of parts, for very low production volume. And then were caught flat-footed when we said, no we actually did mean the order that we sent you. We're making 20,000 units a year, not 1500 units a year. We've had a number of such conversations where our suppliers finally realized that we weren't kidding about that and took the steps necessary to supply us with the parts. And I think we're starting to get beyond silly things like that and get into a steady cadence of production, and suppliers are starting to take our volumes seriously and to offer us prices that are actually competitive in the market. Deepak, is there anything want to add to that?

I think those are all very good points, plus our engineering teams are working closely on identifying efficiencies and material costs, both internally and with our suppliers. So that is a huge focus, which is bringing a lot costs down. Very positive momentum on that.

Sorry. (multiple speakers) One thing I should add is for a number of our supplies, we actually have price breaks that occur at certain volume levels and at certain calendar points, in particular, for example, our deal with Panasonic. That's a huge factor. As we pass certain calendar points and certain production volumes, the cost of the sales in our [value] pack drops, and that has been quite helpful.

I guess, given where you are in terms of your production now, and some of the issues seem to be in the rear-view mirror, I mean, what is your sort of comfortable in sort of meeting or even exceeding that 25% target?

I'm highly confident that we will be above 25% gross margin, without considering zero emission credits, by the end of this year.

Great. Thank you very much for the incremental color.

You're welcome.

John Lovallo from Merrill Lynch.

Hey, guys. Thanks for taking the call. First question, Elon, would be for you. Despite all the noise in the press and all the back-and-forth. I mean, do see kind of the potential necessary additional planning for a driver of an electric vehicle? I mean, do you see that as a headwind? Are you hearing that from anybody?

I think for a long-distance trip right now, depending upon where you are in the country, a little bit of extra planning is needed. I think if you're in California or Nevada, we've got a good density of Superchargers for long-distance driving, so you don't really have to worry about it. The ideal density of Superchargers is maybe around roughly every 120 to 150 miles. Where it is right now on East Coast from DC to Boston, it's about every 200 miles, because we only have two. But we have a bunch more Superchargers that are going into the East Coast and across the country, into Texas, the Seattle area, Chicago, and really want to get to the point where you don't even have to think about it, and I think we're very close to the point. So at some distant point in the future.

We're very rapidly deploying the network of Superchargers, and we're hooking that into the software in the cars, the navigation system will automatically route you to a Supercharger. You plug in wherever you want to go, and it will just route you through the Supercharger network to get where you to go. So you don't even have to think about it. All that is going to happen like in the next several months, it's not far away. I think when people actually use the Supercharger system, which is free, by the way. That seems to be lost in this whole debate. With what card do you have free long distance? It's pretty fricking great, I think. And we're continuing to improve the rate at which the Supercharger can put energy into the car.

We have deployed some of the solar panels over the Superchargers. We're going to start deploying a lot more, which cuts our cost of electricity down. And it's pretty awesome, I think. And then there is -- we've got a fairly, I think, meaningful announcement about a step change in super-charging technology coming later this year. That's actually originally what we were going to talk -- that's sort of first thing what we wanted to do the article in the New York Times about. I don't know, who knows, maybe we will ultimately do it with? But I think that's going to be -- people are going to be pretty interested in that announcement when it comes out. And this whole thing of the does the car work in the cold, and yes, it works really well, actually. We're going to make it work even better over time. It does lose 10% of its range in winter if it's very cold, but so do gasoline cars. People kind of forget about that too.

Okay. That is very helpful. And then Deepak, the Q4 step-up in developmental services revenue, was that more of a kind of true-up from the third quarter where possibly some of that Daimler got pushed back?

Partially yes. That's right.

Okay. Thanks very much, guys.

Dan Galves from Deutsche Bank.

You guys have probably by this point asked most of your current US backlog to configure their vehicle, or to confirm. Just wanted to know what you have learned about likely ordering patterns in terms of battery size, options, et cetera. And do you have any sense of where average transaction prices may shake out this year?

Well, it's definitely more people are ordering the larger battery pack than we thought. It seems to be that, I can say less than 10% of people are ordering the 40-kilowatt hour pack. That's an interesting data point. Not saying that couldn't change in the future, but that's what we're seeing right now. So maybe 10% or less. A majority of people are ordering the big battery pack, actually, which is -- again, I wouldn't count on that in the long-term, but the majority of people are actually -- more than 30% are ordering the 85-kilowatt hour pack, which is a positive surprise, and hopefully that continues. I think that's the best experience that somebody could have with the car. Hopefully that keeps going into the future.

Any revenue outlook for this year that you could provide for us? In terms of average transaction prices?

I guess our inclination is to take it one quarter at a time, but I it's looking -- I don't think people will be disappointed by the revenue numbers this year. I think people will react positively to the revenue number that occurs in this year. And then obviously we want to make sure that we have laid the groundwork this year for a meaningful increase in 2014 as well.

Okay, great, and one other one. How much in terms of deferral's are you experiencing as you go through your reservation book? And just wondering, how many people are really looking for a US leasing option, and if you could provide us any update on the likelihood of a US lease this year, that would be great. Thanks.

Yes. Well, we do see some deferral's taking place, because we have a new color coming out, which is a really great color. I have to admit it, it's a really great color. We spent a lot of time on that red, but [then] I'm suggesting anyone delay their order, but it is an awesome red. So we've got a lot of interest in that. They're saying people that don't want the air springs, even I think that's actually something people should really -- it's worth getting, but some people don't want to get it. And there's a little bit of deferral on that front, but we are not really seeing deferral -- is mostly deferral because certain options aren't available right now, as opposed to other reasons, really. And then, sorry, what was the second question?

Leasing, yes. All of the sales and all the things I mentioned thus far are with zero North American leasing. We don't even offer leasing in North America. That is something that we do want to offer it, maybe second half of the year. So we want to make sure that the terms of the lease, like the interest rate and all that are compelling. Even if we did zero leasing in North America, we could still sell all of our production this year. Leasing is entirely optional for us at this point. And we only want to come out with a leasing product that is compelling. We don't want to come out with kind of a lame leasing product. And we are talking with some of the major financial institutions a little about doing leasing, and those talks are progressing in a good direction.

But in order for us to get the best rates for our customers, I mean, we're not really interested in making a bunch of incremental money from leasing, but we want to make sure we get a good deal for customers. It's important for those big financial institutions to feel really comfortable with Tesla. One of the reasons it can be helpful for us to be powerful this quarter and subsequent quarters is to give greater confidence to the large banks in giving us, our for customers, a good leasing interest rate. I think that's usually happening to the big financial companies. And I do see long-term, not so much this year. I think this year leasing's going to comprise a very small percentage of our volume, but I do think next year leasing will be a big factor. And within Europe, it will be at least a moderate factor this year. We already have a significant leasing deal signed with Aplong, which is one of the major European leasing companies.

Okay. Thanks very much.

Elaine Kwei from Jefferies.

Hi everyone. Congrats on hitting some pretty big milestones this quarter. And actually just following up on the demand generation for 2014, I was curious, what percentages of the new reservations you are seeing coming from stores, and are you seeing a pretty good correlation there with reservation growth and the store openings? I know you probably don't want to give away any tricks up your sleeve, but in terms of just general ideas for the next steps in marketing, do you pursue some traditional automotive channels, or are you still primarily going to rely on the stores and perhaps word-of-mouth or other alternative methods?

There's nothing better at the end of the day than word-of-mouth, which has really been fantastic. In fact, we see a lot of demand occurring where we have delivered the most cars, because that's where the most word-of-mouth occurs, which I think is a really good predictor for the future. As for the stores themselves, George?

Yes. What we're seeing in the stores is that some people come in, they see the car, and they want to put a reservation down today. My gosh, how do I get one as soon as possible? Other people that want to come back, they want to ask some questions, and they keep coming back, and the beauty of the stores is they are located in locations where people frequent on a regular basis. So they don't have to go out of their way to stop back and asked future questions. That's working really, really well. I think when we start looking at 2014 and 2015, I think what we need to do is step back and understand that in our segment, the Model S segment of automobile sales worldwide, less than 30% of them are done in the United States.

There's this massive opportunity for us as we go international where we haven't even tapped it with one new design story yet. None of the stores we have anywhere in the world are like the stores we have in North America in a high-traffic shopping center. We will start doing those this year, so we can start having the same results and getting in front of people elsewhere outside the United States, like we are doing here. And that is one of the things we're going to do in China. We are opening up in this really, really great shopping center in Beijing in the spring that is a high-traffic location.

We've got one scheduled for Hong Kong, we've got one scheduled that we're looking at in a couple of other countries in Europe. And when people come in and they interact with us when there not thinking about a car, it's like the best experience you could have with them, and then when it comes time to buy a car, they think, that's where I want to buy it and that's who I want to buy from. As a result, the longer a store is open and the more cars that are on the road around those stores, the more effective the store has become. The longer a store is open, the better.

That's great color. Would you be able to give us an update on Model X reservations at this time, or maybe perhaps some rough timing around when you might start to step up the marketing push on that one?

Sure. Because we haven't pushed the Model S at all, in fact we literally only have one demonstration unit even. So I wouldn't want people to necessarily judge us against the progress of Model X. Rather than comment on it and have people infer something about that number, I will just say I am pretty happy with how those reservations are going with basically zero effort. Really, it is a doughnut. And I actually think that we're likely to see buying interest for Model X that is at least 70%, or thereabouts, that of the model S. And in certain countries, I think it will probably exceed the model S in demand.

Great. Thanks so much guys, and congrats again.

Thanks. We have time for one more question. One more caller, please.

Andrea James from Dougherty & Company.

Hi, thanks for taking my question. You are suggesting positive incoming Q1, and just, I guess, what still needs to happen to get there, if anything? And then would anything throw that off for the rest of the year, as well?

Sure, good question. I mean, unless there is some force majeure event, like a giant earthquake or something, or a big flood or typhoon, we feel really confident. In fact, it's safe to say that we will be comfortable in the absence of a force majeure event this quarter. It's my aspiration, and I think it's the aspiration of everyone at Tesla, to be profitable in subsequent quarters as well. I'm cautiously optimistic about that, but I don't want to commit to it until I know more. We're committing to Q1, and I think cautiously optimistic about Q2, is a way to think about it.

What sort of information would sort of make you more constructive on Q2? What do you hope to learn as Q1 goes on?

Well, maybe I am hedging too much. I just don't want to be overconfident, really. I mean, I do think we will be profitable in Q2, and subsequent quarters too. But I guess rather than sort of an absolute commitment, I would say I'm just really highly confidence of that being the case.

No, that make sense. Thank you so much.

You are welcome.

Okay, thank you everyone for calling. Want to thank you all for joining us this afternoon. We look forward to seeing you in the coming weeks, either on a factory tour or on our travels to see you. Goodbye.

Thank you.

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