Toyota Deal Not a Silver Bullet for Tesla's Mass Market Goals

Tesla Motors mapped out plans last week to build its Model S electric sedan in Fremont, Calif., and charted a course to eventually partner with Toyota in some capacity developing electric vehicles. But Tesla’s latest filing with financial regulators, updated on Thursday, shows that despite Toyota’s agreement to invest $50 million in the startup, ties between the two companies remain very limited at this point. And hurdles remain for Tesla to start cranking out the Model S in large numbers (the key to Tesla’s profitability) at the old NUMMI facility in Fremont.

Tesla had been mum on the key details of the deal last week: How much would Tesla pay for the plant? Had Toyota made any firm commitment to use components or technology from Tesla? How much equity would Toyota get with its $50 million investment?

Well, a week later, Tesla has filled in some of the gaps in its amendment. The company expects to pay approximately $42 million for a portion of the NUMMI land and facilities, Toyota will buy Tesla’s stock at a price per share equal to the IPO price (as yet undetermined), and the partnership with Toyota is more about intent than firm supply agreements.

Extent of the Toyota Deal

According to Tesla’s latest amendment to its S-1 filing, the startup expects to “receive Toyota’s support with sourcing parts and production and engineering expertise for the Model S.” Tesla’s hoping this will grow into a more lucrative relationship, with Toyota (and other automakers) eventually becoming a customer for powertrain components developed at Tesla’s facility in Palo Alto.

Our request to three members of Tesla’s communications team last week to clarify whether supplying battery packs and powertrains for Toyota vehicles was part of the deal announced on Friday, or something that Tesla would be working toward, went unanswered. And it’s clear from the S-1 that these deals are not in the bag. Tesla writes that it has, “not entered into any agreements with Toyota for any such arrangements, including any purchase orders, and we may never do so.”

NUMMI: What, When and How Much

Musk commented in a release about the NUMMI plans that the facility will give Tesla “plenty of room to grow.” According to the S-1 filing, Tesla’s purchase agreement with NUMMI (now jointly owned by Toyota and the government-held company that took on much of General Motors’ “bad assets” last year) is for 207 acres, or around 55 percent of the land at the site, including all of the manufacturing facilities.

Tesla says the purchase agreement includes “the buildings, improvements and infrastructure systems required to operate the facility.” Manufacturing equipment is not included in the $42 million purchase, however. Equipment currently located at NUMMI (much of which Tesla says may not be suitable for its needs anyway) is set to be auctioned off within the “next several months.”

Tesla explains in its S-1 that it expects the NUMMI purchase to close “within a few months” following the close of its IPO. And while the company intends to use the facility for production of the Model S starting in 2012, Tesla says it is “in an early stage of planning” for the NUMMI facility.

Still on the Model S/NUMMI To Do List

Challenges lie ahead to get Model S production up and running at the Fremont site in short order. Although Tesla explains some of the logic for choosing the NUMMI facility, like it was recently used for automobile manufacturing, it’s located within 20 miles of the Palo Alto engineering facility, and the size enables Tesla to adapt its manufacturing plans quickly, the company also acknowledges some potentially time consuming tasks on its to-do list for the project that could result in “unexpected delays in completing the build out of this facility for the production of our planned Model S.”

Even closing on the purchase of the NUMMI facility will require Tesla to make it over a number of hurdles, chiefly tied to conditions for drawing cash from the loan facility awarded by the Department of Energy last year. An environmental assessment needs to be completed for the facility and approved by the DOE, and Tesla must hit certain “progress milestones relating to the design and development of the Model S.”

On the plus side for Tesla, NUMMI’s past use as an auto factory could help ensure relatively smooth sailing for the environmental assessment. Under its purchase agreement, Tesla says NUMMI will transfer some of its environmental permits and licenses over to the startup. Yet risk remains, as Tesla notes, timely reviews under state and federal environmental regulations “are not assured, and a substantial delay in obtaining these approvals could limit or delay our ability to draw down the full amount of the loans under our DOE Loan Facility, and could limit or delay our ability to build and operate our Model S facility.”

A Deal With Honda, Mounting Losses

In another tidbit from Tesla’s latest regulatory filing, the startup reveals that it has sold what are called zero emission vehicle (ZEV) credits for 368 vehicles to Honda as of March 31, 2010 (previous S-1 filings did not identify which automaker had signed up in 2009 for Tesla’s ZEV credits, earned through the state of California). Honda has also committed to buying additional credits Tesla may earn from the sale of vehicles that the startup made in 2009 but sold in 2010, as well as  from the sale of up to 287 additional vehicles manufactured in 2010 and 2011. Since 2008, Tesla has recorded $12.2 million in revenue from sales of ZEV credits.

In total, Tesla says in its updated amendment that it has generated $147.6 million in revenue since its inception in 2003 through the first three months of this year, while accumulating a deficit of $290.2 million. According to Tesla’s latest filing, the company saw a net loss of $29.5 million in the first quarter of 2010, up from $16 million in the same period a year earlier. The company expects to record operating and net losses every quarter until “significant deliveries of the Model S” begin in 2012, at the earliest.

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