How Tesla Plans to Revolutionize the Electric Car

There may be some cars that we might put at our facilities and have people come in and buy the car because they don't want to wait. We want to start offering that feature. So there's a cost of manufacturing, and there's a cost of selling. Clearly, our model optimizes and makes our cost of selling extremely efficient, because we have less assets and less working capital in our selling strategy. On the cost of manufacturing, on the efficiencies we are getting, are across every part of our bill of material. Of course, the electric power train is a very expensive part of the car, and we are working on every element of it, starting with the cell itself. We are working with our key strategic partners in Asia to make sure we have the lowest cost per kWh on the cell. The battery pack that the cells go into, our engineers and our design really allows us to get the best in class cost per kWh for the pack.

Ciaccia: Do you think that battery costs can come down markedly over the next five years?

Ahuja: I think that in past experience, typically, it averages to about 8% annually. It doesn't necessarily happen every year - there are step functions. The cumulative annual effect is 8%. The product development cycle that we see at these cell manufacturers are these cost reductions will continue in the future at roughly the same rate.

Ciaccia: You touched on power trains before. Tesla does a lot of other work for Toyota and Daimler Benz. What kind of relationships do you have with the two of them, and do you foresee any kind of expansion with other manufacturers to make electric vehicles more than just a niche market?

Ahuja: Our relationship with both Toyota and Daimler, I would say, has been extremely constructive and growing. Clearly they have taken a bigger picture approach as well, since they have decided to invest in Tesla in addition to being our commercial partners. The two are fairly diligent in dealing with commercial decisions in an ongoing basis.

We see a growing opportunity at both Toyota and Daimler, and clearly we've continued to announce the progression of those partnerships, with Daimler, including the recent program where they announced the Mercedes Benz vehicle. We'll provide the entire electric power train, not just the battery pack as we have in the past.