Tesla reached a $60 million deal with Toyota to develop RAV4 EV powertrain

Article by Christian Andrei, on October 14, 2010

Tesla Motors announced that it has reached a $60 million deal with Toyota Motor Corp, in order to develop the powertrain for an electric version of the RAV4 SUV.

For those who don’t know, back in July, Tesla and Toyota announced that plans to work jointly on an electric version of the RAV4. The Toyota RAV4 is one of the top-selling cars in its segment in the United States but also on the European market.

According to Tesla, the services agreement with Toyota includes the development of a battery, power electronics module, motor, transmission and software for the RAV4. In June, Toyota became the key investor in Tesla, when it bought a $50 million stake in the electric car manufacturer in a private placement.

Toyota U.S.A., Inc. revealed at a conference during the 2010 Los Angeles Auto Show its Toyota RAV4 EV Concept. The company disclosed that only 35 units will be made for this second-generation vehicle. They will be part of the demonstration and evaluation program that takes place through 2011.

The goal is that a fully-engineered version will be released in the market in 2012. This fully-engineered vehicle is expected to have a 100-mile range in actual road driving regardless of the condition and climate.

TMS president and chief operating officer Jim Lentz shared that when it was decided to work on the RAV4 EV, President Akio Toyoda revealed that he wanted to have a new development model that would integrate the quick-action and streamlined approach of Tesla.

Lentz added that the result combines the decision and approval process plus development style that engineers are calling "fast and flexible." The collaboration was led by Toyota Motor Engineering and Manufacturing North America (TEMA) Technical Center based in Michigan.

With the use of this new model, the development time was reduced without the need to compromise any of the product quality. This was achieved by the team by handling this particular project in the same way that a usual mid-cycle "major-minor" product change is performed.

The team for instance started with the current RAV4 after which they put in a major powertrain option plus some small feature changes and even cosmetic ones. Tesla on the other hand was the one who built and supplied the battery including other related parts.

Tesla made sure that it would be able to meet the specifications set by Toyota in relation to durability, performance, and quality. Toyota meanwhile was the one in-charge of developing and manufacturing leadership plus it was the one responsible for making sure that the powertrain was seamlessly integrated.

Press Release

Toyota - Tesla Deal

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

October 6, 2010

Tesla Motors, Inc.

(Exact name of registrant as specified in its charter)

3500 Deer Creek Road

Palo Alto, California 94304

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On October 6, 2010, Tesla Motors, Inc. ("Tesla") entered into a Phase 1 Contract Services Agreement (the "Agreement") with Toyota Motor Corporation ("TMC") for the development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software, which will be integrated into an electric vehicle version of the RAV4. Pursuant to the Agreement, based on preliminary specifications, TMC will pay Tesla approximately $60 million for the development services to be provided by Tesla. The parties will mutually agree to the final specifications, deliverables and payment amounts and schedule within 60 days of the execution of the Agreement. This amount will be paid in various installments during the term of the Agreement.

Tesla and TMC previously entered into an agreement to initiate the development of an electric powertrain system for the RAV4 in July 2010 and TMC purchased $50.0 million of Tesla's common stock in a private placement transaction that closed immediately subsequent to the closing of Tesla's initial public offering in July 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

TESLA MOTORS, INC.

By:

/s/ Deepak Ahuja

Deepak Ahuja

Chief Financial Officer

Date: October 13, 2010

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