Model 3 Production Goal Met, Now What?

Tesla Fremont EV production

The What

News from inside Tesla suggests that the company has already met its Model 3 production guidance of 50,000 to 55,000 cars in Q3-2018 as on Friday, Sep 28. Tesla hit the 51,000 cars mark after a week of unusually strong production numbers for the Model 3. That figure could now be close to 53,000 if you include the final two days of September.

The information came from “a reliable source familiar with Tesla’s production,” according to the original report.

The How

Tesla has been on track to meeting or being above guidance since the third week of September, when it emerged that even a rate of 4,000 Model 3s a week would put them within reach of their own estimates. Earlier in the month, VIN registrations had slowed so production was assumed to be well under the 5,000 cars a week level. But even then, the media and the analysts were fairly confident that Tesla would be able to meet its goal. This despite having paint issues and other problems that could have prevented them from achieving the hard target.

So What?

This is important because of several reasons:

First, Tesla’s stock may get the support it sorely needs once the news becomes official. At a time when S.E.C. guns are trained on its CEO, Elon Musk, investors are understandably shaky about the future. That’s borne out by the fact that the stock is now trading dangerously close to its 52-week low of $244 after a stomach-churning drop on Thursday when news of the S.E.C. lawsuit first came out.

Second, a healthy and growing production rate will allow the company to bring forward any international expansion plans that are currently delayed to mid 2019.

Third, nearly everything else hinges on Model 3 numbers; not just production, but also deliveries. With multiple initiatives being tried out this past month on the delivery front, those numbers are now expected to closely track production.

For these and other reasons, all eyes will be on the final confirmed Model 3 production number. It will be a major validation of the Model 3 being a sustainably produced mass-market electric car, and set the tone for the much-awaited $35,000 base version with the standard range battery currently expected in May 2019.

Now What?

If the information from inside Tesla is true, then it sets the bar high for Q4 production numbers. Tesla won’t be able to double what it did in Q3 since battery supply from the Nevada Gigafactory is still a bottleneck, but we should be able to see Tesla aim for a 50% increase quarter over quarter. If Tesla produced 53,000 Model 3s in Q3, a 50% increase would give them a target of about 80,000 Model 3s in Q4.

Is That Possible?

80,000 cars per quarter would mean maintaining an average of 6,000 Model 3s made per week. It looks a little unrealistic at this point, but if Panasonic can remove the battery bottleneck by adding the three new production lines it mentioned two months ago, Tesla may be able to compensate for the current sub-5,000-a-week Model 3 production level by ramping up production in the second half of Q4, presumably around mid-November. But that means they would need to be making between 7,000 and 8,000 Model 3s a week on a consistent basis right through the holiday season.

Analysts have confirmed that this is definitely possible with limited CapEx requirement and in a relatively short period of time, but it all hinges on battery production and other potential bottlenecks. Over the past week Tesla was once again able to breach the 5,000 Model 3s a week level, but it is important that they remain close to that level through October if they want to realistically hit 80,000 by the end of the fourth quarter.