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How Tesla Plans to Revolutionize the Electric Car

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.

For Toyota, we already are providing the entire electric power train, and I think that's going to be an amazing product in the market. Those relationships, I would say have been mutually beneficial. Not only have we provided the power trains, we've learned a lot from them. It's also helped our own supply chain, getting access to cheap parts, and parts that are being purchased at high volumes by Toyota and Daimler, so we get the economies of scale from them. Beyond Toyota and Daimler, we certainly are in conversations with folks. It's a balance between our requirements and our resources required on our vehicles. As it becomes appropriate to announce something, we will.

Ciaccia: How important are the international markets to Tesla? China is consuming an astronomical amount of natural resources. Does Tesla have any plans to educate those consumers on the benefits of having an electric vehicle versus having an internal combustion engine? In terms of a revenue percentage, how do Tesla's revenues break down, domestic, versus international?

Ahuja: We've always considered the international markets important. Roughly half of our stores are located internationally, in Europe and Asia. The Roadsters we've sold in 30 countries, as you may have read. The Roadster has really helped us learn how to be an international company and create a presence in these countries. It serves as a terrific foundation for us as we launch the Model S internationally. The international markets are therefore important in our minds for Model S. We expect to get into Europe and Asia next year with the Model S.

China, as you said, is a huge market. There's also significant price premiums in China, because customers are willing to pay for premium products. We are exploring China, and we definitely expect to be there sometime, I would say, in the 2013 time-frame. I would say the process of getting into China is longer, given the local governments. It's hard to predict exactly when we'll be in China.

Interested in more on Tesla Motors? See TheStreet Ratings' report card for this stock.

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-- Written by Chris Ciaccia in New York

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