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How Tesla Plans to Revolutionize the Electric Car

Ciaccia: You touched on the cost of charging. How does that work? Is the consumer paying for the cost of electricity at a charging station, or is that built into the price of the vehicle?

Ahuja: We expect most people will charge their vehicles at their home. Typically overnight, after they've used the car. Tesla vehicles have a much longer range than any other product so far on the market, per charge. It's pretty convenient to drive throughout the day and still have a lot of charge left and top it off every night.

Typically in many cities, there's a discount when you charge at night. For example, the neighborhoods here, if you charge past 1 a.m., your rates fall pretty dramatically. You can in fact program your car to start charging at specific times to take advantage of those lower rates. Some of those lower rates can fall as low as 6 cents per kilowatt hour (kWh). But even if we look at 10 cents kWh or 11 cents kWh, which is the national average, and we look at the national average price for gasoline, the savings are about $2,400.

Ciaccia: What happens to the EV market if government subsidies are cut because of austerity measures? We started to see it in Europe with solar panels. Does that materially affect Tesla's business?

Ahuja: That's a great question. The core of our strategy has been not to rely on the subsidies to develop a robust business model for Tesla. The main subsidies in our case is the $7,500 tax credit. We've known from the beginning that this is limited to 200,000 cars per manufacturer. Clearly, there's an end in sight, and it could be that this gets changed. You never know what the political environment is, but at this point, it's 200,000 vehicles. We know very well, that when we go to our next product, which is generation three cars, we cannot rely on these tax credits to get us to affordable price points. Our goal is to get our costs down in a way that offers good value to our customers.

Ciaccia: How does Tesla do that? You build on an as-needed basis, as opposed to another auto manufacturer who builds on an assembly line, and cranks out hundreds of thousands of vehicles per year. You're building as needed. How do you cut costs and try to improve the bottom line?

Ahuja: I would certainly link the two. Certainly, the business model that we have of building only to order is possible given that we have lower volumes. I think 20 [thousand], maybe even 50 [thousand], we could be there. As we go to 100 [thousand]-plus or even four or five hundred [thousand], we may have a combination model.

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.

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