Tesla registered a massive 10,528 Model 3 VINs in the last 24 hours.
It’s a massive uptick, because Tesla has registered 10,528 VINs in the first five days of August compared to 21,072 VINs the company registered in July.
One of the most often heard bear case about Tesla is – the company will not be able to sustain peak production rate of 5,000 Model 3s, which the company achieved in the last week of June.
“After Herculean efforts and albeit a few hours after a self-imposed deadline, Tesla finally achieved its latest goal to reach production of 5,000 Model 3 sedans per week. In the interim, we do not see this production rate as operationally or financially sustainable,” analyst Efraim Levy (CFRA Research) said in a note to clients in July.
JP Morgan Analyst Ryan Brinkman, who has sell rating for Tesla with a price target of $180, said “the company’s success in finally meeting its goal of producing 5,000 of its Model 3 mass-market sedans a week, was likely aided by the past practice of unsustainable “burst production,” where it pulls out all the stops to meet a goal that cannot initially be repeated.”
Burst production is of-course not an easy one to be transformed into average production rate. But Tesla has proved over the last two quarters that the company is able to make that transition.
Tesla exited Q4-2017 and Q1-2018 with a peak weekly production of 793 and 2,020 Model 3s.
Tesla built 9,766 Model 3s in Q1 and 28,578 Model 3s in Q2, giving them an average weekly production rate of 751 units for Q1 and 2,198 units for Q2.
Tesla has managed to achieve this rare feat of transforming end of quarter peak production into average weekly production in the subsequent quarter, twice. But despite that Wall Street has persistently questioned Tesla’s ability to sustain weekly production rate of 5,000 Model 3s.
Though VIN registration is not a 100% reliable tool to gauge production rate, Tesla registering more than 20,000 Vins in July and following that up with another 10,000 plus registrations in the first five days August is a good indication that the company is hitting the strides with respect to Model 3 production.
According to Bloomberg Model 3 Tracker, Tesla is now building 5,407 Model 3s per week and expects Tesla to sustain production rate for some more time. Bloomberg tracker is now forecasting Tesla’s production to stay between 4000 to 6000 range over the next few weeks.
The 5,000 per week production rate is extremely crucial for Tesla. If sustained, Tesla will be able to build more than 250,000 Model 3s over the next 12 months.
Nothing fits better to Tesla’s current position than the decades old Wright’s Law (1936).
“We learn by doing.” The cost of a unit decreases as a function of the cumulative production.
The more cars Tesla builds, the lower the company’s fixed cost of production will be. According to UBS Analyst Colin Langan, building 5000 units-a-week is an inflection point for Tesla.
During the second quarter 2018 earnings call CEO Elon Musk did confirm this thesis, as he said
“A total vehicle output of 7,000 vehicles per week, or 350,000 per year, should enable Tesla to become sustainably profitable for the first time in our history”.
This makes it all the more important for Tesla to keep building 5,000 Model 3s every week. Add 2,000 Model S and X to the mix every week, Tesla will be able to breach 350k cars in a year and bring down its fixed costs substantially.
Now that we have reached a production rate of 5,000 Model 3 vehicles per week, we are focused on further ramping production, and achieving profitability and continuous cost efficiencies. We expect to produce 50,000 to 55,000 Model 3 vehicles in Q3, which will represent an increase of 75% to 92% from the prior quarter. – Q2 18 shareholder letter
Tesla has guided for production of just 50,000 to 55,000 Model 3s for the third quarter. But if Tesla keeps up the pace, as shown by the pace of VIN registration, they can sail over 60,000 Model 3s for the quarter.
Source: https://twitter.com/Model3VINs
