Ben Schuman – Pacific Crest Securities LLC
All right, great thanks. And then I guess with the Toyota announcement given the size of the production contract, we get to about $38,000 Tesla content per vehicle. You’ve mentioned in the shareholder letter that the Mercedes powertrain costs can be sort of low enough on higher volumes to fit a higher volume vehicle. Can you sort of walk through the steps there. Did it all just appear to economy to scale or is there are some additional cost reductions that you can point to.
Deepak Ahuja
. . . .
So, I want to just clarify that and also keep in mind that the volumes we are talking here on the Toyota program are far lower and there is an inherent design in efficiency when you are trying to develop a powertrain and make it fit in an internal combustion engine vehicle, it doesn't give us those cost savings that we get inherently from the Model S platform. When we look at the higher volumes for the Daimler program, the huge economies of scale and other design factors that help us out.
Elon R. Musk
Yeah, I mean just to be clear, the economies of scale is the single biggest driver of cost reduction, I think first it's an approximation, if you scale up production by a factor of 10, your costs would generate drop by half.
And that’s a good generalization I think. And so that’s where most of the cost savings is coming from. And then there will also be continued design improvements as we figure out how to achieve the same end goal in a smarter way. Those are the two drivers of mass market, a technology gains mass market which is continued iteration on the design and economies of scale and that’s generally true for any technology.
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Jesse W. Pichel – Jefferies & Co., Inc.
Yes, good evening gentlemen. I’d like to ask you that the Daimler drivetrains. In your letter, you allude to tremendous volumes. Can these volumes be large enough to change the cost structure of the S drivetrains and was a contract of this magnitude factored into your 25% margin guide?
Elon R. Musk
So with respect to the margin that’s not really, we are not talking about the 25% gross margin model, we are talking about the Model S, just by itself, so no that’s been factored in. And I think economies of scale, does need to be some commonality to achieve those economies of scale. And there will be some amount of commonality, so I guess it would probably just some help to the Model S costs to add the Daimler volume in there. It's not directly additive, but I think it's at least partially added it to the economies of scale.
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Andrea James – Dougherty & Company LLC
Hi, thanks for taking my questions. Trying to gauge the opportunity in the Daimler partnership, if we look at all the powertrain agreements signed in Tesla history is about $140 million in agreements is that about right? Are you talking about a Mercedes contract value that’s an order of magnitude greater than that or just simply greater?
Deepak Ahuja
Yeah, the $140 million is probably what’s partially in our financial statements, Andrea there is a little bit more to it, as well as our existing Toyota agreement, which is not in our financial system and will happen over the next few years. So the number is north of that roughly in the $280 so million range.
In terms of the Daimler contract, its north of that, how much, I think probably best to just wait until we mature or get to that level and talk beyond, but we just wanted to still give you some sense of scale by providing that guidance.
Andrea James – Dougherty & Company LLC
Okay. Thank you.
Elon R. Musk
Yeah, there is certainly, I mean there is a possibility for it to lead to something that’s order of magnitude greater, but we need to get things, we reach one level after another. So the question is proving ourselves that at each successive level, which we’ve been able to do thus far and but we need to keep doing that in order to progress to essentially the next level.