Visualizing Tesla's Model 3 Ramp, Based on Elon Musk's Most Recent Estimates
It's crunch time for Tesla (NASDAQ: TSLA).
The first 30 Model 3 customers, which are expected to be Tesla employees, should receive their vehicles this month. Tesla is at a critical juncture where its ability to execute on ramping Model 3 production is by far its most important operational challenge, and it won't be an easy task. Fortunately for investors, CEO Elon Musk provided some additional estimates last weekend. With those data points in hand, we can visualize a possible ramp.
The estimated Model 3 ramp, visualized
Prior to Musk's recent tweets, the extent of Tesla's guidance was provided in the first-quarter shareholder letter: "Simultaneously, preparations at our production facilities are on track to support the ramp of Model 3 production to 5,000 vehicles per week at some point in 2017, and to 10,000 vehicles per week at some point in 2018."
Now we know that "some point in 2017" is expected to be around the end of November or beginning of December, which would translate into the 20,000 units that Musk predicts for the final month of the year. Musk frequently talks about S-curves and exponential growth rates, so I've added an exponential trend line (the dotted line) for illustrative purposes; it also helps me gauge my estimates in connecting the dots for the two missing months.
If these estimates prove anywhere near accurate, then Tesla could produce and subsequently deliver nearly 34,000 Model 3 vehicles this year. That's not a terrible start -- Tesla delivered roughly 22,400 vehicles throughout all of 2013, and is now planning on building 20,000 Model 3 sedans in a single month -- but it's far short of the company's previous guidance. It's also but a small chunk of Tesla's backlog, which is likely still around 400,000, judging by trends in customer deposits on the balance sheet.
In May 2016, Tesla said it hoped to deliver 100,000 to 200,000 Model 3 vehicles in the second half of 2017. At the same time, it also accelerated its timeline for when it hoped to build 500,000 vehicles, from an original target date of 2020 to 2018. By 2020, Tesla wanted to build 1 million vehicles. Musk reiterated both of those 2018 and 2020 targets as recently as February of this year.
In order to hit 500,000 units next year, Tesla will need to hit the production rate of 10,000 units per week pretty early on in 2018. It's definitely crunch time.
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Evan Niu, CFA owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.