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Saturday, January 27, 2018

2018 Tesla Model 3 Production: 80,000 or 264,000?


We've had an ongoing series to track the number of cars that Tesla delivers. In the US, there's a very good reason to be concerned with deliveries. That reason is the federal EV incentive that begins a phase-out countdown after the 200,000th vehicle is delivered.

The effort of tracking the deliveries has led us to monitoring Tesla's manufacturing results. With that in mind, we'll look at Tesla's most recent production guidance and we'll look at the model we've built based on their historic delivery results and see how closely they align.

Tesla's 2018 Production Guidance 

From Tesla's January 3rd letter:

In Q4, Tesla delivered 29,870 vehicles, of which 15,200 were Model S, 13,120 were Model X, and 1,550 were Model 3...
In the last few days [of the 4th quarter], we hit a production rate ... that extrapolates to over 1,000 Model 3's per week.
As we continue to focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time, we expect to have a slightly more gradual ramp through Q1, likely ending the quarter at a weekly rate of about 2,500 Model 3 vehicles. We intend to achieve the 5,000 per week milestone by the end of Q2.

These tells us a few things: They are making about 30,00 Model S & X per quarter, they are currently capable of 1,000 Model 3s per week as of the end of 2017. They plan a slow, quality-focused ramp up to 2,500 per week by the end of Q1, and finally, they plan to be at 5,000 per week by the end of Q2.

This update didn't mention anything beyond Q2, but we know from previous statements that Tesla plans to get to 10,000 Model 3s per week. In August of 2017 Musk said:

What people should absolutely have zero concern about, and I mean zero, is that Tesla will achieve a 10,000 unit production week by the end of next year… I think people should really not have any concerns that we won’t reach that outcome from a production rate.

Using these statements, we'll try to set an upper and lower bound on Tesla's guidance. Since the latest guidance didn't mention anything beyond 5,000 per week, for the low end, we'll just keep it at this level. That seems unlikely given the "zero concern" comment, but it gives us a bigger delta between the high and low guidance ranges. Considering the uncertainty of forecasting, wide error bars seems like a good idea.

2018 Week Weekly Low Weekly High Cumulative Low Cumulative High Notes
1 500 1500 500 1500 Since Tesla ended 2017 at a rate of 1000 per week, this seems like a good starting point (plus or minus 500)
2 572 1565 1072 3065 Slow ramp to 2500 in week 13 starts
3 654 1633 1726 4699
4 748 1705 2474 6403
5 855 1779 3329 8182
6 978 1865 4307 10038
7 1118 1937 5425 11975
8 1278 2021 6703 13997
9 1462 2109 8165 16106
10 1671 2297 9836 18308
11 1911 2297 11747 20605
12 2186 2397 13933 23002
13 2500 2500 16433 25502 End of Q1 at 2500 per week guidance
14 2550 2637 18983 28139
15 2601 2782 21584 30920
16 2653 2934 24237 36949
17 2706 3095 26943 36949
18 2774 3264 29717 40213
19 2846 3443 32563 43656
20 2931 3632 35494 47288
21 3107 3831 38601 51119
22 3325 4041 41926 55160
23 3591 4262 45517 59422
24 3914 4496 49431 63918
25 4305 4742 53736 68660
26 5000 5000 58736 73660 5000 per week at the end of Q2
27 5000 5136 63736 78796
28 5000 5275 68736 84071
29 5000 5418 73736 89488
30 5000 5564 78736 95053
31 5000 5715 83736 100768
32 5000 5870 88736 106638
33 5000 6029 93736 112667
34 5000 6193 98736 118860
35 5000 6360 103736 125220
36 5000 6533 108736 131753
37 5000 6710 113736 138463
38 5000 6892 118736 145354
39 5000 7078 123736 152433
40 5000 7270 128736 159703
41 5000 7467 133736 167170
42 5000 7670 138736 174840
43 5000 7877 143736 182717
44 5000 8091 148736 190808
45 5000 8310 153736 199119
46 5000 8535 158736 207654
47 5000 8767 163736 216421
48 5000 9004 168736 225425
49 5000 9248 173736 234673
50 5000 9499 178736 244172
51 5000 9756 183736 253929
52 5,000 10,000 188,736 263,929 10,000 per week at the end of 2018 in the high guidance

Following Tesla's guidance, if they meet their 2,500 and 5,000 targets, they'll produce ~189,000 Model 3s in 2018. If they hit the high end of guidance and continue to ramp up to 10,000 per week by the end of the year, they would have ~264,000 Model 3s produced in 2018. Add about 100,000 Model S and X and Tesla could have their first 300,000+ year.

Back in its NUMMI days, the Fremont factory had the capacity to produce about ~500,000 cars per year, so this is not an impossibility for this location. However, going from ~50,000 in 2017 to ~300,000 in 2018 is a big jump; it is not just a doubling, but a 6X.

Our Model

Rather than just going by Tesla's guidance, let's look at the historical data from Tesla's deliveries and see how that projects forward. This is "driving by the rearview mirror", but it can provide a sanity check.

The mathematical model that we're using looks at Tesla's prior US deliveries and simply projects a best-fit growth. Since Model 3 deliveries are currently only going to the US, this seems reasonable. This math model does not have any targets, goals, or shareholders. It's just an equation, not an undeniable fate. It doesn't account for innovation or step functions. The majority of the data that feeds this model is based 5 and a half years of Model S and X deliveries. Model 3 is being made with an entirely new manufacturing line and new processes, so this model is of limited value. That said, if the model agrees with Tesla's guidance, this will allow for increased confidence in the guidance.

Compared Side By Side


Many types of exponential growth charts have a hockey-stick curve. When they hit the "elbow" and "go exponential" the values grow drastically. As you can see, Tesla's guidance, even their low guidance, anticipates going exponential in Q2 of this year.

Our model (the green line) is much more pessimistic.  It does have growth in Tesla's production, it even predicts a record year for Tesla, but not to the level of Tesla's guidance. Let's zoom in on 2018 for a little closer look.

There's a big difference between these three lines. There are a lot of unknowns for 2018. The chart shows that 2018 Model 3 production could be anywhere from 80,000 to 264,000 Model 3s. Tesla's Model 3 guidance throughout all of 2017 has been highly optimistic and production has fallen short, but they will resolve the bottlenecks (perhaps they already have), they will turn the corner of the elbow,  production will make a big jump and "go exponential". Our model has this occurring in 2019. I hope Tesla's guidance for 2018 is more accurate and we see it this year.

The optimistic estimates for Model 3 production in 2017 predicted about 80,000 vehicles. Tesla delivered a couple thousand. Ironically, for this year, our model predicts this same number (80,000), yet it is considered pessimistic, in light of Tesla's guidance and the optimistic projections by others. As we've covered here, setting very aggressive goals (and often falling short, while still achieving great things) is a part of Musk's leadership style. It would not be a surprise if one or more suppliers stumbles in 2018 as Tesla attempts to go from 1,000 Model 3 units per week to 5,000 per week. Given these logistics, the 80,000 units for the year estimate seems realistic. All while Tesla also delivers more Model S and X cars than they ever have before too.

http://ts.la/patrick7819