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