Seeking Alpha provides a transcript of last night’s Earnings Call (embedded below).

The 3 big notables: In the early part of the discussion CEO Elon Musk said:

We are going to spend staggering amounts of money on CapEx. I mean for a good reason and with the great ROI. And it’s important to not look at CapEx and isolation because like that CapEx obviously is being done for reason in order to capture substantial future revenue flow. But I think sort of backing on below it. Just if you see if you write to the assumptions I emphasize these are just certain assumptions. I’m not saying are true or that they will occur, but I just say that they do occur, personally, such as [indiscernible] I fell something, I mean if you take this year’s revenue around $6 billion where there are about – and if we are able to maintain [indiscernible] growth rate for ten years and achieve a 10% profitable number and have 20PE, our market cap would be basically the same as Apple’s today. Now that’s going to require a bit – a order $700 million. Obviously, getting the roll acquire some significant CapEx.

But I’m hopeful that we can do this without any significant dilution to the company. So maybe minor dilution, but nothing serious.

This means that Tesla is going to raise some capital to pay off some of this CapEx. Most importantly, Tesla’s CTO sees such a huge upside to the growth trajectory that he’s wiling to put huge things out there.

tesla-storage-unitNext, JB Straubel talked about releasing a consumer battery project:

Yes, we’re going to do — we’re going to unveil some of the Tesla home battery consumer battery that will be for you using and people’s houses or businesses, fairly soon. We have to design and it should start going into production probably about six months or so. We’ll probably got to wait to have sort of product availing it’s probably in the next month or two. It’s really great. I’m really excited about it.

Solar City already sells Tesla batteries but these aren’t available direct to consumer and are only available as part of a Solar project in California. JB is talking about something much bigger which could be:

  • an alternative to emergency generators
  • a solar add on for all solar companies and consumers past, present and future
  • a product for utilities that could alleviate spikes

Finally, the mystery. Elon Musk, when talking about demand laid this little tidbit out:

I think we’re going to be okay on the demand side for this year, and I mean, maybe something changes next year but I think we’ll be okay and I don’t think we’re going to have to do a bunch of advertising or [indiscernible] with the dealers or anything like that this year and or discount the cars or anything like that. So if I can do an emphasize that whenever you feel like this celebrity or some prominent person driving a car they all paid full retail. There was no discount. We didn’t give them a car they are buying a car and they are driving because they really believe in the car not because someone paid them or they tend to do. So regular credit [indiscernible] car. So yes, I think we do have a secret weapon on the demand side that will probably start to deploy later this year for the demand generation. While I don’t think it isn’t totally necessary, that I think and it could be pretty interesting, it could work against the dealers.

OMG. Rocket man has a secret weapon ready to deploy on car dealers. Can’t wait. 

Tesla Motors’ (TSLA) CEO Elon Musk On Q4 2014 Results – Earnings Call Transcript

Tesla Motors, Inc.

Q4 2014 Earnings Conference Call

February 11, 2015 7:30 PM ET

Executives

Jeff Evanson – Vice President-Investor Relations

Elon Musk – Chairman, Product Architect and Chief Executive Officer

JB Straubel – Chief Technical Officer

Deepak Ahuja – Chief Financial Officer

Analysts

Andrea James – Dougherty & Company LLC

Brian Johnson – Barclays

Adam Jonas – Morgan Stanley

John Lovallo – Bank of America Merrill Lynch

Ben Kallo – Robert W. Baird

Ryan Brinkman – JP Morgan

Patrick Archambault – Goldman Sachs

Rod Lache – Deutsche Bank

Dan Galves – Credit Suisse

Trip Chowdhry – Global Equity Research

Andrew Fung – CLSA

Operator

Good day ladies and gentlemen and welcome to the Tesla Motors Fourth Quarter 2014 Financial Results Q&A Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

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

Jeff Evanson – Vice President-Investor RelationsThank you, Patrick and good afternoon everyone. Welcome to Tesla’s fourth quarter Q&A webcast. I’m joined today by Elon Musk, Tesla’s Chairman and CEO, JB Straubel, our CTO and Deepak Ahuja, Tesla’s CFO. We announced our financial and operational results today in a shareholder letter that’s available at the same link as this webcast and a replay of this webcast will be available later today at the same link.

The shareholder letter includes GAAP and non-GAAP financial results, as well as reconciliations between the two. Our non-GAAP measures add back deferred revenue and related expenses for cars delivered where the cash has done or will soon be collected. These non-GAAP results also exclude the stock-based compensation and non-cash interest expense. Revenues and cost associated with cars leased directly through us are treated the same in our GAAP and non-GAAP financial information.

During the call, we will be discussing our business outlook and making other forward-looking statements, which are based on our predictions and expectations as of today. 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.

And now Patrick, if you could assemble the queue and have our first question please?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Andrea James with Dougherty & Company. Your line is open.

Andrea James – Dougherty & Company LLCHi, thanks for taking my questions and congratulations on the rocket launch.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThank you.

Andrea James – Dougherty & Company LLCSo just quickly can you help me get to a free cash flow for your, looks like you can do $1.5 billion in CapEx, but what’s going to be the operating cash flow to offset that?

Deepak Ahuja – Chief Financial OfficerYes, we will have clearly significant – Deepak here, hi Andrea.

Andrea James – Dougherty & Company LLCHi.

Deepak Ahuja – Chief Financial OfficerWe would have significant positive operating cash flow, obviously as our business, our volume gross and our gross margin continues to improve. We’ll also have some cash used on our direct leasing program. Our expectation is that we will establish shop via warehouse line for leasing cars and that will continue to grow and fund the big portion for leasing funding required. So overall, we feel pretty comfortable where we are in terms of our 2015 look from a cash flow perspective.

Andrea James – Dougherty & Company LLCSo maybe about $1 billion is that about inline cash burn?

Deepak Ahuja – Chief Financial OfficerShould be less than that.

Andrea James – Dougherty & Company LLCOkay.

Deepak Ahuja – Chief Financial OfficerYes, considering that we will have a lease warehouse line which continues to expand.

Andrea James – Dougherty & Company LLCGot it. And so then another point, it looks like you expanded your the residual value guarantee into extra market late last year. And then I saw last week you’re giving and recharging, home charging to focus in China. So I guess my question is it looks like you have really pretty good demand globally tender increases, so why continue to give incentives to buy the cars demand is so high?

Deepak Ahuja – Chief Financial OfficerSorry Straubel.

JB Straubel – Chief Technical OfficerWell, I think fundamentally in China, we want to make sure we are not creating any hurdles or issues that create a negative customer experience. And charging installation given the varied regulations and challenges there has been a difficult customer experience and they want to over come that by providing [indiscernible].

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, because investors’ standard is considered standard in China, just like buying an BMW i3 or Elite something that considers the standard things. So we’re just matching what competitors do. But I think its like is whole. The portion in China has been doing erratic portion. We didn’t execute people well on China last year, but it didn’t really matter or people couldn’t quite get that, like it’s not like the all these extra cars we could have produced and it’s only we’d had bunch more customers in China, we could have [indiscernible] those cars.

We have production constraint. So I wish we weren’t but we were. So forward to getting demand constrain in the future. So essentially it didn’t matter whether we in took company as a whole, whether we saw a lot of cars in China or a small number of our cars in China, we have had still going in that what would had couple of cars to U.S. or Europe as in China. So it wasn’t a high priority for the company, because it wasn’t a constraining factor. Now obviously, in the long-term we do want to succeed in China and make sure we’re doing a good job. And I think just like the rest of the world, China wants to have the best products and we think the Model S is the best car in world and that’s indicated by a multiple outside assessment, to share with people in China want the best car in the world. So that’s something we got to make sure, we take that right foundation for future growth. But it was essentially irrelevant to last year.

That’s an important point. And the biggest issue which we’re still fighting to address is this perception that is as difficult to charge your car in China. This is false it is not difficult to charge your car in China. Unfortunately, this sounds kind of brain blood [ph] but our sales team with selling people that it was difficult to charge in China. Even though this is not true like that is pretty silly. And so that I think the guy who was in charge of the supercharger rollout in China, is doing an excellent job and he’s an engineer, basically, not a sales person, in charge of China to make sure that charging is super easy and excellent. He’s not a marketing guys or sales guy, he is like, he is an engineer and he’s an operations guys and he’s going to make sure that people have, where customers are trying to have a fantastic experience and then just like other countries those customers become sales force and the product sales grow by [indiscernible].

Andrea James – Dougherty & Company LLCSo, is this a company philosophy because it seems like you are putting engineers in charge of customer service even globally you’ve thrown, I mean is it customer service and engineering problem?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerI think people have a good accretive [ph] problem solving and they will – they got a greater problem solving I think for the year I guess of buyers that most of things persists I mean sure I can’t think this as an engineering problem. But you know not everything is engineering problem, but I think that’s like you got to design the system and sometime face different problem in the form of car or discharging or later you communicate with that perspective customers it just create a problem solving to ensure that those – what we are waiting for, how those accretive runs over. We just given it, get it right So that’s what we’re doing and confidence that soon after this year that will be in really fluctuate in China and yes I’m pretty optimistic about it. I don’t think that’s somewhat unique you see this year in China and terrific sales, sales in Hong Kong I’ll show the Hong Kong excellence and that would have a lot perception is a charging issue in Hong Kong and anyway it is [indiscernible] as long so it’s not our guess. So really that we are targeting and so I’m confident that since we see high demand in the other part of the world that we’ll see it in China as well.

Andrea James – Dougherty & Company LLCAnd just to the point that thank you for the clarity on China. Just to my point on the residual value guarantee. Is that something that you plan on keeping and why keep it and what are you thoughts on that?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes. That’s a good question. I actually worry about steady keeping or steady keep it, it’s kind of mode there was a little volume you are going to see that matches were other premiums are done as see after kind of three year time period but are actually volumes especially about that so never actually matters we are not going to paying out which is our ranking because the car is worth model with your volume and – but this kind of mess with our counting because we have to create it like at [indiscernible] but that’s what – I mean if we would screw it then that mean we got people take that out a lack of confidence in our product and they might – they might less conservative as such. So even though it’s moot and it doesn’t really matter, it’s just there to provide confidence to the customers. Yes, so I think, we’ll probably keep it even though it makes our financial [indiscernible].

So, I think it’s really important, because we get some criticism about GAAP versus non-GAAP, there are like when we do non-GAAP production, trying to trick people, and so thinking something is better than it is. But actually it’s not true, I don’t – I think that the way the accounting rules currently work don’t give a correct picture, we’re trying to give a more correct picture of non-GAAP, not a less correct picture. And as we do from our gross margin GAAP and non-GAAP were basically the same.

So, when we look for revenue the difference between the GAAP and non-GAAP it’s just – it comes out just two things, this residual value guarantee, where we – as we just talked about, it moved. But because of the [indiscernible] we have to recognize the revenue over time, even though we got the cash immediately. So our cash flow – non-GAAP after representation of that cash flow, it looks like what really matters.

And yes, so and then even in non-GAAP, we don’t – for leases that we do internally, they actually aren’t even covered in non-GAAP.

JB Straubel – Chief Technical OfficerAnd we didn’t receive the full cash up front. So it’s aligned with our cash flow.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerExactly, exactly funded cash flow.

JB Straubel – Chief Technical OfficerRight, whereas in some other auto company the moment they sell the car to a dealership, we understand a recognizable revenue, but even though the financing entity might lease that car and so they don’t have the cash flows, but they have a GAAP revenue. So in some sense our non-GAAP revenue is pretty clean in the mid lines of [indiscernible] with our cash flow.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, this is really important, because we’re into one point to emphasize, because like – because there might be are we perhaps exaggerating our revenues relative to how other car companies may represent the revenues. And what Deepak just add is a fair good point. What the other car companies will do is they will sell the cars to the dealer groups, but then they will didn’t turn around and lease finance those same cars. So they are sending it through the laundromat, it is basically what they’re doing.

In our case, since we are not sending it through laundromat, it’s much, actually more correct. Because if we do a lease it’s all internal and we’re not trying to sort of spend it through some third-party where actually the risk is still assumed by the parent car company.

So yes, and then even, so leases that we do ourselves, we can securitize those leases whenever we want. So we can take those leases, fund them and put them into a securitization program or to get a warehouse loan to recover the capital. The reason we’re using our existing capital is just basically common sense, because it’s got a bit bank balance that’s earning a 0.1% or basically nothing, actually minus whatever the inflation rate is. And so, it makes more sense for us to put that capital to work with consumer leases and current 2% to 3% that’s basically what quarter amounted to, but whenever we want to recover that capital we can do so through warehouse balance securitization. Yes.

JB Straubel – Chief Technical OfficerThank you for taking my questions.

Deepak Ahuja – Chief Financial OfficerYes so financials are better than they appear, not more than that is really a key point.

Operator

Thank you. Our next question comes from Brian Johnson with Barclays. Your line is open.

Brian Johnson – BarclaysYes, good evening. I wanted to explore a bit where you see the trajectory of CapEx and Opex. You gave some guidance for next year, but as we tend to think ahead to the Gigafactory and as we think ahead to the model achieved in the Gen 3 launch, how do you see those trends going over the next several years.

JB Straubel – Chief Technical OfficerWe are going to spend staggering amounts of money on CapEx. I mean for a good reason and with the great ROI. And it’s important to not look at CapEx and isolation because like that CapEx obviously is being done for reason in order to capture substantial future revenue flow. But I think sort of backing on below it. Just if you see if you write to the assumptions I emphasize these are just certain assumptions. I’m not saying are true or that they will occur, but I just say that they do occur, personally, such as [indiscernible] I fell something, I mean if you take this year’s revenue around $6 billion where there are about – and if we are able to maintain [indiscernible] growth rate for ten years and achieve a 10% profitable number and have 20PE, our market cap would be basically the same as apples today. Now that’s going to require a bit – a order $700 million. Obviously, getting the roll acquire some significant CapEx.

But I’m hopeful that we can do this without any significant dilution to the company. So maybe minor dilution, but nothing serious.

Brian Johnson – BarclaysAnd how about in terms of operating expense and do you have a target for reported margins versus kind of thinking about your remarks in the second press conference at [indiscernible] where margins would be if you’d stop growing? Is there a difference between the margins on the non-GAAP basis we’d actually see, versus what they would be if you weren’t making those kind of investments?

Deepak Ahuja – Chief Financial OfficerYou mean profit margin as opposed to gross margin?

Brian Johnson – BarclaysYeah, yeah the operating margin.

Deepak Ahuja – Chief Financial OfficerYeah, I mean, we could easily get to 10%, 15%. I probably if we – say somewhere between 10% and 15%, because I can remember about gross margins that this year will probably, and by the end of the year be somewhere around 30%. Then if 20 of those points go to sort of fixed cost and R&D and that was not and then like they were for growth profitability. And we are expecting to be non-GAAP profitable.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerAnd we have been non-GAAP profitable for two years now 2015 and 2014.

Deepak Ahuja – Chief Financial OfficerYes I’d like to emphasis that doesn’t mean both are profitable, it means really profitable. It difficult to pass question, Brian in terms of separating OpEx between the fast growing company like Tesla versus steady-state, clearly we want to invest in the future, but we want to do it efficiently and we are going to focus on being efficient with our OpEx fundamentally this year.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThat is a key thing. The simple math of headcount requires this I mean, we’re basically lower to 10,000 people and in for somewhere around 55,000 cars this year. Just get to 0.5 million cars a year if we do not improve our productivity per person, we would need 100,000 people. We’re not sure we would really park. So clearly there need to be dramatic improvement in productivity which aren’t they?

Brian Johnson – BarclaysRight, and so when you said 10% was that 10% was to growing to the millions of cars target you talked about in 2025, or that’s kind of 10% when you get to that millions of cars target?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes I think it’s important we’re actually to be able to maintain terms like profitability in spite of mighty growth. Can you just run out of way to spend money, it’s like kind of capital that running out of the way to spend money that I get my order over there and they still can spend up there?

JB Straubel – Chief Technical OfficerI think for us we are a single vehicle platform company at this point for our engineering expenses have their ebbs and flows. So that has an impact as we grow will become a portfolio of vehicle platforms even with [indiscernible] growth we can get to a very good operating margin.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, it’s sort of planned like we are doing this, as I mentioned in later, but there is massive infrastructure expansion like really massive like setting up service centers worldwide, I mean creating our ubiquitous Supercharger network worldwide, just across all these countries growing with customs and unique elements for each country. We are massively increasing this sort of scope and scales of Tesla in order to lay a foundation for future growth.

Brian Johnson – BarclaysOkay, great. And just final question more for Deepak. When does CapEx slow into depreciation and gross margin, what kind of timeframes for the CapEx in terms of depreciable life spends, are you assuming on things like Gigafactory, factory drilling [ph] and sub-factory.

Deepak Ahuja – Chief Financial OfficerSo to answer your first question, when assets so put to use for production and delivery of cost that’s when depreciation kicks off, so a lot of our spend is here is on production capacity expansion and Model X rolling. Those the assets where car depreciation and in Model X and starts producing the Gigafactory assets clearly will go into would be depreciated when we start producing cells that are being used for production and our revenue growth.

And the life of the depreciation life depends on the kind of asset it can vary from five years for tuning to longer if its equipment and if its facility then could be for 30 years. And we strictly follow the generally accepted principles there in our expected life of use to come up with those expenses.

Brian Johnson – BarclaysOkay, great, okay, thanks.

Operator

Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Your line is open.

Adam Jonas – Morgan StanleyGood evening, everybody. First factor China, do you have any concerns about your ability to presume business in China on terms of protect your interest, what I mean is like if you look at the German manufacturers, they don’t seem to any problems 50/50 JV structures or little bit local partners and not having control on selling to franchisers. Are you able to – are those terms that you are comfortable doing business within China?

Deepak Ahuja – Chief Financial OfficerWell, I think we definitely going to – want to have local manufacturing for some model like R&D as well in the future in China. Not going to make [indiscernible] long-term to be holding a huge number of cars in California and shipping into China. But right now we’re still at the early stages, so it’s difficult to say exactly what happens in the future, I mean our goals in the short-term China, just brought straight forward is just to build out our service in Supercharger infrastructure and just at the basic foundational elements there, but we’re not going to give us, as we not going – we’re not going to give us anywhere in the world. So our activities in China currently have Tesla-owned and sort of depends on what the evolving landscape, here is in China in the long-term as well here and how a JV would have to sell.

Adam Jonas – Morgan StanleyOkay, Elon just on the patents, within eight months, since we opened up the patents that competitors to use, any takers of any significant technology? I’m not aware of any or you surprised or have been more, and is this just a function of just kind of is it hubris and pride, are your competitors or is it they just don’t have the kind of intellectual capabilities or software engineering depth to kind of contextualize what you have to offer.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerI’m quite sure that there will be and that’s actually manufacturers are currently thank you to our patent. But just important remember that bicycle, from the point of which you can use intellectual property, you got sort of the [indiscernible] design, that design is going to get, you got detail engineering and design, you got two things out and then you got to go to production. So probably first time you see companies anyone using our IP would be up three years after we announced.

Adam Jonas – Morgan StanleyOkay. And then finally Elon just you mentioned, I think some staggering amounts of – seen amounts of money on CapEx. Companies that usually have those kinds of spending ambitions at this point and growth phase also have a pretty developed relationship of capital markets to help fund that growth and yourself and you enterprise has been, I think done that quite successfully. Any heuristics, you can kind of leave us with as people kind of contemplate more cash burn with the being necessary to fund great things and great projects that will ultimately payoff. But any kind of rolled out [indiscernible] minimum levels of liquidity or the kind of things you’d look at to decide whether you need to kind of refill the capital tank? Thanks.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerWe don’t have any plans for raising money right now. And I think we can get to that sort of crazy level that I spoke earlier with really minimal solution. It’s really going to be very much all doing in the amount that would come from operating cash flow. So yes feel generally pretty good about product – gains getting to that level with moderate minor to moderate solution. I think, [indiscernible] and I’m not saying we really don’t have any plans at this point. It’s natural where it earlier is just to have a bigger cash cushion there’ll be the, in case there’s a big downturn in the economy or something like that.

Adam Jonas – Morgan StanleyThanks very much.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerOkay.

Operator

Thank you, our next question comes from John Lovallo with Bank of America. Your line is open.

John Lovallo – Bank of America Merrill LynchHey guys, thanks for taking the call. First question is cash print continues to be pretty aggressive here. So the question is if demand is strong as you guys are saying really is these use on the supply side, why wouldn’t you raise prices in all regions till these set – offset the FX headwinds. And then the reason I’m asking is, if you get more demand than you can handle, this won’t hurt deliveries, it should also clearly benefit cash flow and investors and will also support residual values to be, your current owners. So it sounds like a win-win all around, so could you address that please?

JB Straubel – Chief Technical OfficerWell, I didn’t actually kind of think our car is expensive as it is. It’s really not a cheap car. For a huge number of our customers it’s the most expensive car that ever board. And I didn’t think they can buy a car that cost $100,000. So I’m reluctant to raise that price. And as we start running into fundamental affordability limits. As it is, we are expecting to be significantly – have a significant positive cash flow and lower half of the year.

So yes, I mean, there’ll be sort of a short-term debt that it’s clear and quite positive at the end of the year, in regarding to 2016, even more so.

Deepak Ahuja – Chief Financial OfficerAnd I think that’s completely linked to a major product launch actually in the automotive industry you have to invest in the CapEx for manufacturing capacity and then the cash flow comes through when you launch.

JB Straubel – Chief Technical OfficerYes.

John Lovallo – Bank of America Merrill LynchJust to be clear on that one what you say seeing you’re going to be cash flow positive by the end of the year, that’s faster CapEx?

Deepak Ahuja – Chief Financial OfficerThat’s our – yes, that is expectation and I think we got to have focus on the long-term right, this is the short-term issue in terms of timing of CapEx versus revenue.

JB Straubel – Chief Technical OfficerBut yes, – but to answer your question, yes, even in the face of significant CapEx we’re expect cash flow positive in Q4.

John Lovallo – Bank of America Merrill LynchIn Q4? Okay.

JB Straubel – Chief Technical OfficerI mean, that will happen somewhere in late Q3, but it’s – it will be reflected most clearly in Q4.

Deepak Ahuja – Chief Financial OfficerAnd it’s linked with the volume production of Model X.

JB Straubel – Chief Technical OfficerYes, exactly, we got to get Model X. It could give – we have kind of CapEx related to Model X.

John Lovallo – Bank of America Merrill LynchYes.

JB Straubel – Chief Technical OfficerWe have invested in a bunch of things that actually, our volume numbers that are really better associated with Model 3 so that our quarter billion dollar paint shop upgrade is intended to be able to handle 10,000 cars a week.

John Lovallo – Bank of America Merrill LynchOkay, thanks. And then the next question is – there has been a lot of discussions about persistent drive train issues and we’ve heard everything from different customers from persistent humming noises to complete failures. So the question is I mean how pervasive is the drive train issue? What is the cost to replace a drive train? And I was a little surprised to see that the warranty reserves would not move up quarter-over-quarter?

JB Straubel – Chief Technical OfficerYes. I think there is a lot of noise on the forums. It’s not quite as bad as people make — assuming — most people haven’t experienced any drive train issue at all. There was a period of time, basically for a month or two about a year ago where — we’re getting into the weeds but the application of Greece on the spline of the motor was incorrect. And that caused the splines were out and the strip the spline on the drive unit on the motor. So that particularly affected [indiscernible] and unfortunately it happens to coincide with a – when a whole batch of cars headed for no way. So unfortunately – disproportionately affected the region customers. We’ve taken great pain to address. Essentially what it amounts to [indiscernible] is just to you’ve got to put a full drive unit and incentives to get [indiscernible] where we replaced the letter and…

JB Straubel – Chief Technical OfficerAnd maybe to the warrant, this is JB, to the warranty reserve question we’ve actually improved quite a bit a lot in our efficiency of repairing the drive unit. So it might be swapped for a given customer but it doesn’t get trashed, it gets repaired. And the elements that need to get repaired are increasingly narrow and we are really targeting them quite directly, even the rotor can be repaired at this point.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes. And there was a differential clock that was causing a differential that can actually be fixed with a two partition at the end of service centre. So we were able to figure out the service centre fixed to address that with that even [indiscernible].

JB Straubel – Chief Technical OfficerOkay. All the new units being built today, of course get all these pictures you know proactively so – as you learn them the new products improved.

John Lovallo – Bank of America Merrill LynchThat’s helpful. And then finally, Elon, I just want to ask you about your comment about GAAP profitability not being reached until 2029. I know you guys say that the non-GAAP ways, the way to think about it and I’m not disagreeing with that here, but what I am suggesting is that is if there’s not going to be GAAP profitability until 2020 and we kind of walk down from The Streets consensus non-GAAP number to a GAAP number by adding back stock comp, adding back non-cash interest expense and making an assumption on the leasing. My estimate would suggest that The Street estimates are 30% to 60% too high because the GAAP component of that non-GAAP number will need to be eliminated. So if you guys can just help me to think about if that math is incorrect and more importantly what is the path to profitability for the Tesla?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerSure, I think people [indiscernible] because I was asked, when it Tesla would have full-year GAAP profitability and sort of but then – sort of residual bank guidance – do we continue doing that or do we not continue doing that because the half of cars are financed, right. So that basically cost side revenue and happen in a lot of cases.

John Lovallo – Bank of America Merrill LynchLeasing as well.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerAnd then leasing so if like leasing 100% guarantee of half of the cars that basically massive effect on the revenue recognition. So and then quarter basically full year. So I think I mean its that is like – probably 2020 it’s the full year and it’s GAAP. That’s – what that actually means is that like Tesla – like free cash flow is incredible in 2020, it’s able to overwhelm even the non-GAAP stuff. So I think people don’t understand that was extremely optimistic not pessimistic statement.

John Lovallo – Bank of America Merrill LynchOkay, thank you guys.

Operator

Our next question comes from the Ben Kallo with Robert W. Baird. Your line is open.

Ben Kallo – Robert W. BairdHi, thank you for taking my question. A couple of different ones, first kind of a lower level one as far as the X goes and timing could you just talk about I know you reiterate deliveries in Q3 and just your confidence level around that and then maybe one of the questions we get a lot is if we extend that to the Gen 3 and your 2017 timeframe can you just talk about great work you’re doing there and how confident you’re engaging to that timeline?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, it’s fair criticism. I think in fact this is – feels like in this paradox – like we sort of halfway there in point. Really at this – the X design is done. So it’s just a question of the truly in supply chain at this point. And then making sure as we do the ramp up on X, but out quality is excellent, it doesn’t seems any good, obviously we want to make sure to have a really great experience we don’t want to have them – have sort of issues or problem. So I mean, it’s really [indiscernible] supply chains. So, and we’re trying to make that goes as fast as possible. So, we’re highly confident of delivering up those customer cars this summer and them just moving up to significant volume in Q4.

Now with respect to Model 3, we definitely – we don’t utilize that – the X to effect the Model 3 and we’re really – quite conscious about this and I mean there are things that we could with Model 3 platform that are really adventures but this gets risk. So what we’re going to do is we’re going to have something that it’s going to be an amazing car, but if there won’t be the most adventures version of the Model 3 to begin with, so we will then have the more sort of – the more different version of the Model 3, on the Model 3 platform following the initial version so that we can stay on track for Model 3.

We are quite adventures with the X and we don’t want – we don’t want to be [indiscernible] Gigafactory and everything sort of has to have that on time, we don’t – we’re not going to go super crazy with the design of the initial version of 3. So I do feel confident that we can make that happen in second half of 2017.

Ben Kallo – Robert W. BairdGreat.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerAs long as we stick to those principles.

Ben Kallo – Robert W. BairdGreat. And question on innovation and releasing new features, what was your learned from the dual motor as far as the timing of new releases and how that impacts demand and how you do that going forward. I know you guys are constantly innovating on the car, but does that disrupt demand at all and how do you do that that specifically during Model years, big advances.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThis is a problem that we struggle with. It’s really tricky because — we basically have one car with variation. This would be much easier if we had different cars. It’s tough for us to announce in advance that there is going to be some new version of the car because then we are like worried about starting midterm sales. A lot of people wait to see what it is. So it is a real tricky thing and then we also, it is difficult to forecast the exact demand since [indiscernible] of the car. We really have to guess. How many people want to be [indiscernible], we have no idea. It turns out a lot, really a lot. There – then we have too much demand for the [indiscernible] and now we got to prove that how to do that and then how many people are going to pick the next gen as it turns out also a lot. So we couldn’t make [indiscernible]. So [indiscernible] about this in the future. But, yes.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerI think one thing in particular that we are toward is to be sure that we are really ready to meet the production demands at a much higher percentage mix when we have something new or an innovative or an innovated new feature. And that is definitely I think a lesson we learned.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, agreed.

Ben Kallo – Robert W. BairdAnd my last one is on the storage side of the business. Can you just talk about any developments there? We have heard some utilities looking for our peace for utilities scale products that you guys ate at a position at a position where you can start being on those RFPs and entering those RFPs, just give some update there and thanks guys.

Elon Musk – Chairman, Product Architect and Chief Executive Officer[Indiscernible].

Ben Kallo – Robert W. BairdYes, [indiscernible].

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, we are getting a lot of RFPs already.

JB Straubel – Chief Technical OfficerI don’t want to go into super minor detail on this but you are correct. Of course there’s a lot of interest and a lot of utilities are working in this space. And we are talking to almost all of them. It’s early stage of stuff and a lot of these projects are very far out — since the near procurement cycle for utilities is so long. But this is a business that certainly is gaining an increasing amount of our attention.

Yes, we’re going to do — we’re going to unveil some of the Tesla home battery consumer battery that will be for you using and people’s houses or businesses, fairly soon. We have to design and it should start going into production probably about six months or so. We’ll probably got to wait to have sort of product availing it’s probably in the next month or two. It’s really great. I’m really excited about it.

Ben Kallo – Robert W. BairdThanks guys.

Operator

Our next question comes from Ryan Brinkman with JP Morgan. Your line is open.

Ryan Brinkman – JP MorganHi, thanks for taking my question. Can you give us a sense for what you think your gross margin would have been in the quarter if not for the 1,400 deliveries that were pushed into 1Q?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerActually [indiscernible] there were a bunch of things that current side is – we have expedited shipping. Could to make those numbers we had massive all time, massive X product shipping. And then the year was also following. If those things have been occurred I mean December in order of 28% maybe similar and…

Ryan Brinkman – JP MorganOkay, that’s helpful. And then just last question, because is there any additional cover you can give us on just the cadence of sales and production in 2015 – beyond one. I’m curious why the deliveries are expected to be flat in 1Q versus 4Q given that they should benefit from the push out of those holiday deliveries and my production is forecast down sequentially to given that the full year is going to up so much and sort of beyond 1Q, what can you tell us in terms of when you expect to be implied inflection to occur in 2Q or 3Q what the catalyst is for that whether it’s a capacity bump up again or Model X or something like that. Thanks.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes. And then just corresponding about to potentially 28% invest is that 28% excluding that credit. So if you added that credit and top ladder would beyond 29% or 30% or something like that. So yes, in terms of the production from Q4 to Q1 being relatively flat, there is a couple of reasons that, they’re actually two, three weeks of production in Q1 versus Q4. One is because we have to give – certainly so give people the first week of January, also because that have been working of Christmas and New Year’s has been Thanksgiving a lot of cases. So they just get even break. We didn’t get back in first week of January. And also your franchise coming out great and then is also one fewer production week in Q1. So that’s basically mind it two weeks.

And then, in Q1 we’re focused on productivity improvement and making a groundwork for higher volume in the remainder of the year. But obviously if we do the math, it doesn’t mean there is going to be a very big scale of as you get towards the year.

Deepak Ahuja – Chief Financial OfficerAnd we had over 10,000 order is one hand, so it’s not a demand issue that we’re delivering and been providing this number, get a lot of cost and transit as we are again, adjusting our global mix of deliveries.

Ryan Brinkman – JP MorganOkay, all right.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerA lot of thousand transits contribute.

Ryan Brinkman – JP MorganThank you.

Operator

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

Patrick Archambault – Goldman SachsThank you, yes, good evening. I just wanted to follow-up actually just on some of the comments you made about being less adventures for the X relative – for the Model 3, excuse me, relative to the X and playing at a little bit safer. Can you just give us a sense of what some of these characteristics and features are that you might have at one point been considering for the initial version that maybe put in place for later model upgrade.

JB Straubel – Chief Technical OfficerPatrick, we can tell you that. I mean – so yes, this is – yes, with X we had the Falcon Wing door, which is a first of the double X rating gullwing door basically we called Falcon Wing door. Getting that rights and making sure it works really well and isn’t it mechanic, that is a fundamental improvement in utility and aesthetics for cars extremely difficult. As a recent, I’ll be one done this. And then this is the second row on the Model X is like it is a second [indiscernible] culture beauty they’re amazing. So that nicely second growth we’ve had a seen in any car ever. That actually might have been harder than the door. And there was some other things throughout the extra field on no about yet.

But those one driving schedule is really second [indiscernible] and end up the door. So then going to Model 3, we want to and I think we want to have integrated to the high volume. That for those feature we lose year production. That’s what it would make more sense just go with something, but we know people are going to love. It’s going to be and probably beautiful and functional and amazing car.

And then innovate in more on c directions on that platform with future iterations where we are not we can put aside any schedule and volume concerned.

Patrick Archambault – Goldman SachsUnderstood, certainly looking forward to seeing – have you guys said when is there going to be any sort of advanced – sort of showing of it at any auto shows or anything some of the more bench prototype ahead of the launch that we should be looking forward to?

JB Straubel – Chief Technical OfficerA cluster of these sort of different features that I mentioned – we’re not going to show it until gets delivered.

Patrick Archambault – Goldman SachsInteresting, okay, okay. Switching gears a little bit back on China, just on orders, I understand that the deliveries have been significantly impacted by a number of the issues that you’ve described but how have orders been trending in China? Especially now that you’ve made some replacements, on the management side, you seem to a solution while in hand that’s being implemented address some of the concerns whether they were justified or not? How have you seen kind of the Model S order book track, pre and sort of post those issues?

JB Straubel – Chief Technical OfficerWell, – only been charge for a short period of time, but – the trend is possible already. So I think – which we said improving every week. And it’s some like elementary things that we were missing before like maps and directions – didn’t have maps and directions in China which was very important. So now it – and we don’t like – which we will have soon, so there is a lot of functionality that’s just getting out of – their software price, but that’s pretty helpful. So yes, the trend is positive. I don’t have any significant concerns about it right now.

Deepak Ahuja – Chief Financial OfficerI mean it had been some have reported that quarters had been coming in somewhere in the neighborhood of a 100th day and – which are obviously point to a pretty good annual run rate and is that sort of that lease the order of magnitude that you’re trending at and that you can get back to in the shorter-term?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThe problem last year is that we had a whole bunch of speculators that were basically trying to buy versions of the cars and we sell them at a high price, which is [indiscernible]. So it gave like a – I think greater sense of demand in the beginning, it wasn’t real.

Patrick Archambault – Goldman SachsYes.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerI don’t think we were attended delay at anytime.

Patrick Archambault – Goldman SachsYes.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThey would sounds like 50,000 plus car shipped in China loan demand at any annualized rate. I don’t know.

Patrick Archambault – Goldman SachsOkay, that’s helpful color though. Last one for me is just more of an accounting clarification. I think in one of the pages you talk about direct leasing, impacting, I guess reducing both non-GAAP and GAAP profitability. I think we understand why it reduces GAAP profitability. We’ve actually address that a lot in this call, but non-GAAP I was just wondering why that would be impacted.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, because we steal the whole title for the car and we haven’t collected full cash on the car. And so we don’t recognize those truck leased cars even in our non-GAAP financial.

Patrick Archambault – Goldman SachsUnderstood. Okay. Thanks a lot guys.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, but as I mentioned that we can always free of that cash by securitizing our internal leases and/or by just getting warehouse loan facility. So it’s specific. Yes, the price that our ARPU, I guess what I would consider our real revenue is actually higher than our non-GAAP revenue, because of the internal leases.

Patrick Archambault – Goldman SachsGot it. Okay, great. Thanks a lot guys.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerAnd I mean the vehicles delivered to customers is really the key metrics that I’ve focus on. We don’t get people a car less than paid for it. Paid for somehow and the average price for car is pretty obvious, so that’s really the key number.

Patrick Archambault – Goldman SachsOkay. Thank you.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes.

Operator

Next question comes from Rod Lache of Deutsche Bank. Your line is open.

Rod Lache – Deutsche BankHi, everybody. I apologize if this has been answered. I’d some phone problems here, but I was hoping you might be able to help us with what you see as the run rate of sales for Model S right now and that bridge to the 55,000. Should we look at the 40,000 deliveries or may be its 46,000 if you annualize what you did and add in the delayed Model D? Is that a run rate, and then to get from here to 55,000, where is China now? What is it needs to be and what actually are you including for the Model X this year?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes. So actually correct, even if our sales in China were zero this year, zero. I’m so confident we could do the 55,000 cars, they might be zero. So as far as what the mix is between S and X, it’s really tricky, I wish I could tell you with accuracy, but it really depends on how the production ramp goes with the X when we start up at this summer. And even small changes in that ramp can have quite a dramatic effect on X production.

Rod Lache – Deutsche BankSo, actually for the calendar year because it’s late.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerExactly.

Rod Lache – Deutsche BankLong-term makes no difference.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, exactly. If we are producing and I would say 800 X as a week, and if – several weeks it’s like several cars. So it’s just really – it’s really tricky to picture from – it’s must easier to break down next year. I assuming people like the car, that’s where you start to see, yes, I don’t know, 40,000, 30,000 40,000 at least. 50,000 let’s call 30,000 to 50,000 X next year.

Rod Lache – Deutsche BankOkay. And clearly up until now as you pointed out, you’ve been able to hit all these numbers without any advertising and marketing.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerAnd I know endorsements [ph], I know discounts.

Rod Lache – Deutsche BankRight, to get…

Elon Musk – Chairman, Product Architect and Chief Executive OfficerWe haven’t paid anyone to pretend that they like our car.

Rod Lache – Deutsche BankRight, and…

Elon Musk – Chairman, Product Architect and Chief Executive OfficerPoint.

Rod Lache – Deutsche BankAnd no franchise dealers and you know all these things that you – people had said that might need to do, you’ve been able to do without any of them, but I’m just curious about kind of longer-term to get to the volume objectives that you are looking for this year and beyond? Is – or all of those in your view achievable of, while avoiding the franchise dealer model, while holding back on advertising and marketing and while in some cases even raising prices for example, in Europe to adjust for current year or any of those impediments to the demand objectives that you have and would you modify the strategy in any way to achieve these volume numbers?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerI think we’re going to be okay on the demand side for this year, and I mean, maybe something changes next year but I think we’ll be okay and I don’t think we’re going to have to do a bunch of advertising or [indiscernible] with the dealers or anything like that this year and or discount the cars or anything like that. So if I can do an emphasize that whenever you feel like this celebrity or some prominent person driving a car they all paid full retail. There was no discount. We didn’t give them a car they are buying a car and they are driving because they really believe in the car not because someone paid them or they tend to do. So regular credit [indiscernible] car. So yes, I think we do have a secret weapon on the demand side that will probably start to deploy later this year for the demand generation. We’ll [indiscernible] it isn’t totally necessary, that I think and it could be pretty interesting, I could work against the dealers.

Rod Lache – Deutsche BankOkay. And just one last question I had, you mentioned in your letter that the margin was pressured half by revenue and half by cost factors. The FX part of this was pretty clear and there was a comment in there about the third autopilot revenue, could you just explain, maybe just elaborate a little bit on what you meant actually in that description of the margin variance?

Deepak Ahuja – Chief Financial OfficerOn that particular one Rod, we announced several features that the autopilot functionality or hardware is going to deliver. Those features although the hardware is in the car, some of them will get activated through software releases later this year. And so based on the [indiscernible] aspect of revenue for accounting we have to differ some of that revenue into 2015. And I think it’s as simple as that. Yes.

Rod Lache – Deutsche BankOkay. That variance versus the 28% original objective or is that versus what was that comparison against.

JB Straubel – Chief Technical OfficerThat was yes, as part of that because as we had to figure out the accounting for it, work through the whole thing in it, as we deferred significant amount there that had an impact to our, otherwise deliver cost gross margins that would have been there. It’s like a half of [indiscernible].

Rod Lache – Deutsche BankYes, that’s right.

JB Straubel – Chief Technical OfficerMaybe you have to point 20% [ph] or so.

Rod Lache – Deutsche BankYes.

JB Straubel – Chief Technical OfficerAnd but most of that deferral will be taken care of this quarter with the software release next month. We should add a bunch of more functionality to the car. Right now, I’m really excited about the software release we have plan for next month – features and that are going to positively effect entire fleet and then of course we’ll add more autopilot capability.

Rod Lache – Deutsche BankThat could be exciting.

JB Straubel – Chief Technical OfficerYes, really, really good release.

Rod Lache – Deutsche BankThank you.

Deepak Ahuja – Chief Financial OfficerPatrick, before we go to the next question, I just want to do a time check with Elon, we’re coming up on the our market and we have several more questioners in the queue.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, [indiscernible]

Deepak Ahuja – Chief Financial OfficerAll right, Patrick.

Operator

Our next question comes from Dan Galves with Credit Suisse. Your line is open.

Dan Galves – Credit SuisseHi, thanks good evening. Sort of question on the delivery guidance, if you adjust that for in this additional in transit vehicles. I am just trying to get a sense of whether you feel like that’s your best guess on kind of your maps production for 2015 because my sense coming to the year around a 1000 a week is you could produce a lot more than that. So I am just getting a sense of – what part of that is demand constrain and what part is production constrains?

Elon Musk – Chairman, Product Architect and Chief Executive OfficerWell, I mean we are going to try to deal better than the 55 number. So I think 55 plus, but we’re going to try do a little better than that. But it is – it’s really depend on how the ramp goes that can have – but we also expect – we’re going to also factor in lots of cars and ships…

Dan Galves – Credit SuisseOkay, there has been gap in production and delivery time.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes.

Dan Galves – Credit SuisseAnd then we need to consider there could be disruption doing launch of X and so when you looking at the broad number of 55,000 or – the things we need to consider through the year what happened.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes, this 55 is like a number that we’re pretty comfortable with achieving on deliveries and then – yes, we are making cautious decisions to focus on productivity this quarter, not just on ramping production, production stability [indiscernible] for future growth. And we just in how just go through production ramp kind of just trying to – productivity and just kind of fix the foundational elements. So the cautious decision this quarter to thank everybody [indiscernible] improve our core productivity. We’re running at cost in these spaces like [indiscernible]. Our [indiscernible] plan is pretty big and it’s hard to park. So we need to just get these productivity improvements in place so we can grow our productions volumes without a portion of the current headcount.

Dan Galves – Credit SuisseAnd that makes a lot of sense. And then just one kind of health keeping question there you put the chart at the beginning of the shareholder letter with revenue guidance for 2015. Is there anything in there for trade-in sales for used car sales? And do you have any sort of sense of kind of what type of drag on gross margin with sale of trade-ins will be?

Deepak Ahuja – Chief Financial OfficerThere’s a small amount of that then we are just getting into that business now and our goal is certainly not to make that same kind of money, on our used cars.

JB Straubel – Chief Technical OfficerBut used cars also like the capital – [indiscernible] really on there really, turn on capitals until, so it’s actually like the used car – your margin is actually it’s on a ROI basis other extremely good.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerRight but when the dealers too make lot more gross margin on used cars than new cars then that’s not our intention but the ROI is still really good for us.

JB Straubel – Chief Technical OfficerYes. But we’re going to separate that obviously so we can see new car gross margin versus used car service and other things.

Deepak Ahuja – Chief Financial OfficerSo this brings up a good point that as we said that towards end of our shareholder letter starting for 2015 financials we are going to show our income statements probably differently where automotive revenues and cost of good sold is truly new-car sales and then we have services and other sections of the income statement that has all these other things including trade-ins and.

JB Straubel – Chief Technical OfficerYes, so we will break it out. So you can probably clearly like what’s new Model S gross margin looks when you just look to other things there.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerYes so I appreciate it, thanks.

JB Straubel – Chief Technical OfficerAll right.

Operator

One more question comes from Trip Chowdhry with Global Equity Research, your line is open.

Trip Chowdhry – Global Equity ResearchThank you. Two quick questions. We see a lot of similarity between Apple and Tesla, both cause – both companies go for perfection, performance and design. But we don’t see Apple making a $30 iPhone. I was just wondering instead of focusing on Model 3, and we just focused on say Model S, say Model X, but made than even better and just focused on increasing the range to say 400 miles, 450 miles, you already have that roadster which is at 400 miles now? I think that would make [indiscernible].

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThere are sort of miles 360, but close to 400 miles, yes we have the upgrade. Capable of doing any center care that yes. And so, yes, that I mean [indiscernible] has always been to accelerate the advent of sustainable transport and to make electrical cars happen much fast then not though is their case. So in order to do that we have to make lots of cars and we need to make them heck a lot more affordable than estimates are today. Even the Model 3 it is a sort of mass market premium car. It’s not – still premium, but its mass market premium is that 35K, its not a, yes, that the spot average size.

JB Straubel – Chief Technical OfficerYes, I think it’s also not an either/or decision. We definitely will keep making S and X better and we will keep improving that platform really as much as a technology rollout. So we’re going in both of those directions.

Trip Chowdhry – Global Equity ResearchPerfect, thank you.

Operator

Our next question comes from Andrew Fung with CLSA. Your line is open.

Andrew Fung – CLSAThanks for taking my question. So the Gigafactory since we are making some good progress in terms of construction, could you provide an update on how the development get battery supply chain is progressing and perhaps any notable challenges or perhaps positive surprises that have occurred with that I’ll process.

JB Straubel – Chief Technical OfficerSure, I can take that one, so JB. So far we’ve been pretty pleased with the supply chain development. We’re spending a lot of time visiting more and more of the supply chain partners and understanding and learning about all those different markets. That learning is progressing quickly and I think we’re getting a much more clear picture of exactly how we will achieve the cross reductions we talked about. I don’t want to go into too many specifics on exactly sort of what we’ve learned in which places. But I would say there is a lot – maybe more incremental positivity on some of the commodities and some of the ways I think we can secure and procure pricing on some of the larger commodity prices that go into the sale.

Andrew Fung – CLSAGreat, and any sense of when you guys may announce additional either supplier is a partners in the Gigafactory.

JB Straubel – Chief Technical OfficerWe want to be a little bit cautious about doing that too soon. There is obviously a lot of work going on and discussion with all of those partners, but I think we just – we want to be careful to make sure that all the agreements and decision on the, where that partnership is headed is very clear. So we will wait until, it’s really done and ready to announce.

Andrew Fung – CLSAGreat thank you.

Operator

Next question comes from Andrea James with Dougherty & Company. Your line is open.

Andrea James – Dougherty & Company LLCThanks for taking my follow-up, why did you guys promise the loads to 3.0 this year.

JB Straubel – Chief Technical OfficerIt’s just a long-standing obligation we have in this front something that economically went for us, but it’s just an obligation through our early adopters of Tesla and we said we’d provide a significant upgrade to the roadster and that’s what we’re doing. And I think – its okay, I mean it’s not a big thing one way or the other, slightly economically just Tesla.

Andrea James – Dougherty & Company LLCAnd so if I read through on the range communication on the Roadster 3.0 and I just apply that sort of same range gain to the Model S. I guess I get a 350 mile to 400 mile range Model S by say 2017, is that the rate, I mean, is that is all the gains there translatable?

JB Straubel – Chief Technical OfficerIt’s sort of simple to put an exact time, like 2017, probably not in 2017 at some point, yes. I don’t know if that – whether that’s 2017, but it’s not 2017 but it might be say 2019 or 2020 or something like that. [Indiscernible]. We can make the Model S go 400 miles today, if we wanted to by just increasing the pack size.

Andrea James – Dougherty & Company LLCGreat. I mean at the same, I mean there is a same cost, same pack cost say give $22,000 pack will be 400 mile range next couple of years that seems that two of the assets.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerNext couple years would be too aggressive. If you go five years now, that might be the case. That’s not a prediction, that’s just speculation. But I’d say it’s not two years but it might be five years.

Andrea James – Dougherty & Company LLCOkay, and then just I feel like we should just generally ask for your thoughts on oil, although it’s a pretty broad question. So may be just general thoughts on oil, but then more pointedly what it does to the residual value of the cars and then also maybe the corresponding offset with listing the value of deserve credits as more gas guzzling cars are sold, I don’t know, there you go.

JB Straubel – Chief Technical OfficerWell oil is concerned, I mean, I’m not an expert in the oil business. Obviously fracking this last week with the be available oil reserves worldwide, fracking goes more expensive than this standard oil [indiscernible] so that traffic cost of doing that, sets a floor on fracking. The demand, it’s really anyone’s guess to what happens with oil prices long-term. Demand is certainly going to increase it’s sort of like however supply go to match that. But for sure oil companies are going to be scaling back their investments in new oil fields massively with low price for oil today. So expect that – I’d expect that as…

Andrea James – Dougherty & Company LLCBut as it translates to the impacts on demand for your vehicles, and then also the residual value for those vehicles.

Deepak Ahuja – Chief Financial OfficerIt certainly has some effects but I wouldn’t say it’s not a dramatic effect, I mean it’s, I call it a moderate effect. And I’m not – it is not changing in any of my projections. Put it that way.

Andrea James – Dougherty & Company LLCThank you.

Deepak Ahuja – Chief Financial OfficerOkay.

Operator

Thank you. That ends our Q&A session today. I’ll turn it back to management for closing remarks.

Elon Musk – Chairman, Product Architect and Chief Executive OfficerThank you everyone for joining us few hours later, obviously it was important to get the one shop. And so, thank you and good night.

Operator

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

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