Tesla 2012 Annual Report Download - page 14

Table of Contents
Additionally, our team has expertise in lightweight materials, a very important characteristic for electric vehicles given the impact of mass
on range. The Tesla Roadster is built with an internally-designed carbon fiber body which provides a balance of strength and mass. We intend to
build Model S with a lightweight aluminum body and have been designing the body and chassis with a variety of materials and production
methods that will help optimize the weight of the vehicle. We are developing an integrated electric vehicle manufacturing facility in Fremont,
California, the Tesla Factory, to assemble vehicles and manufacture components that are critical to our intellectual property and quality of Model
S. Our engineering and manufacturing teams are working alongside one another in an effort to accelerate the Model S development. We believe
the co-location of our engineering and manufacturing teams will help accelerate the development of new products and allow for faster
introduction of product changes.
Sales and Marketing
Company-Owned Sales
We market and sell cars directly to consumers. Until we opened our first store in Los Angeles, California in May 2008, all of our sales of
the Tesla Roadster were conducted via the phone and internet, or in-person at our headquarters and corporate events. Increasingly, sales are
being made through our network of Tesla stores. Our Tesla stores are highly visible, premium outlets in major metropolitan markets some of
which combine retail sales and service. We intend to build separate sales and service locations in several markets. In April 2011, we opened our
store at Santana Row in San Jose, California. The opening of our Santana Row store launched what we believe to be a new retail experience
designed to engage and inform potential customers about electric vehicles in general and the advantages of the Tesla experience in particular.
We have opened five other locations modeled on this concept to complement a network of 20 sales and service locations in North America,
Europe and Asia. We plan to open additional stores and service centers during 2012, with a goal of establishing approximately 50 stores and
additional service centers globally within the next several years in connection with our Model S rollout.
We believe that by owning our own sales and service network we can offer a compelling customer experience while achieving operating
efficiencies and capturing sales and service revenues incumbent automobile manufacturers do not enjoy in the traditional franchised distribution
and service model. Our customers deal directly with our own Tesla-employed sales and service staff, creating what we believe is a differentiated
buying experience from the buying experience consumers have with franchised automobile dealers and service centers. We believe we will also
be able to better control costs of inventory, manage warranty service and pricing, maintain and strengthen the Tesla brand, and obtain rapid
customer feedback. Further, we believe that by owning our sales network we will avoid the conflict of interest in the traditional dealership
structure inherent to most incumbent automobile manufacturers where the sale of warranty parts and repairs by a dealer are a key source of
revenue and profit for the dealer but often are an expense for the vehicle manufacturer.
Reservations
We typically carry very limited inventory of our vehicles at our Tesla stores. While some customers purchase their vehicles from this
inventory, most of our Tesla Roadster customers choose to customize the appearance of their vehicle. Potential customers who purchase Tesla
Roadsters manufactured to specification are required to enter into a purchase agreement and pay a nonrefundable deposit, which is applied
towards the purchase price of the vehicle. For vehicles purchased directly from our showrooms, no deposit is required. For our 2011 model year
Tesla Roadsters manufactured to specification, our current purchase agreement requires the payment of an initial deposit, which varies based on
the country of purchase. For Model S and Model X, we require an initial refundable reservation payment of at least $5,000. We require
nonrefundable deposits for Tesla Roadsters manufactured to specification. We also occasionally accept refundable reservation payments if a
customer is interested in purchasing a vehicle but not yet prepared to select the vehicle specifications. We currently require full payment of the
purchase price of the vehicle only upon delivery of the vehicle to the
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