Tesla Model 3 Prediction: 83K Deliveries in 2017

Tesla is going to sell almost 83,000 Model 3’s in 2017 based on my forecast model.

Looking at the EV market, the Tesla Model 3 hits the mass market consumer. With an estimated base price of $35,000, maybe a little higher, the attainability of this electric vehicle reaches more prospective owners. In fact, there are already 400,000 reservations and deliveries are set to begin in July.

At a recent shareholder event, Elon Musk shared key production learnings from the Tesla Model X that is helping to optimize production of the Model 3.

“We have kept the initial configurations for Model 3 very simple. This is critical to achieving a rapid production ramp. Big mistake we made with the X [is] way too much complexity right at the beginning…that was very foolish.

And [the] Model X…has way too many cool things in it that should have really been rolled in with Version 2, Version 3, that would have been the sensible way to do it. So initially, the Model 3 configurators, it’s kind of going to be like what color do you want and what size of wheels do you want. That’s basically going to be the configurator.

[There will] just be a single motor to begin with and then we will have the dual motor config, if we are lucky, toward the end of this year or more likely early next,” said Musk.

Tesla is projecting to product “1,000 vehicles per week in July, 4,000 per week in August and 5,000 per week in September, before hitting the target of 10,000 vehicles per week sometime in 2018.“ In 2018, the goal is to produce 400,000 vehicles.

Despite Tesla’s high hopes, industry analyst, Steve Funk, says it isn’t possible.

"All the same, Tesla has not yet achieved "alien dreadnought” in automobile manufacturing. While the process has become highly automated with the extensive use of robots, there are limits. Fremont is not much different from any other automobile manufacturing plant. If anything, it’s less efficient than most.” said Funk.

According to Funk, the paint shop and production line appear to be the bottlenecks.

“Because Tesla has not expanded the Fremont factory, it is reasonable to expect the two assembly lines have a nominal capacity similar to NUMMI. Here is the NUMMI capacity:

  • Truck Line (Model S and X): nominal capacity 180,720 jobs/year (48 jph)

  • Small Car Line (Model 3): nominal capacity 225,900 jobs/ year (60 jph)

From 2000 to 2009, NUMMI produced an average of 154,522 Tacomas on the Truck Line, less than the nominal capacity. Because the truck line is slower than the small car line, Tesla uses it for Model S/X production.

Tesla forecasts Model S/X production to be no more than 100,000 units in 2017. Presumably, this is demand constrained.

The small car line is faster and is slated to assemble the Model 3. The 225,900 capacity figure is based on two shifts with straight time.” Funk predicted.

Based on this, and my learnings from my recent trip to Fremont, I agree that this Tesla plant alone won’t get them to the huge number they’re projecting. In fact, Musk even stated that the Fremont plant is “bursting at the seams.” To meet their high projections, Tesla needs to give “serious consideration” to more factories - potentially as many as 20.

Considering these factors and my learnings, I am downgrading Tesla’s originally published estimate of around 100K Model 3’s in 2017 to around 83,000. I think the production lines will become automated in early September, and this is when they’ll see a big jump in efficiency.

Musk also talked about how Model 3 production is exponential instead of linear. Musk said: "Another thing I really want to emphasize is the production ramp tends to look like – is exponential. Ultimately it is an S-curve. An exponential goes to linear then goes to log. And it’s very difficult to predict exactly where that beginning part of the exponential and the S-curve fits in between quarterly reporting.” Based on this, once the equipment is installed, in both the gigafactory and the production will grow exponentially.

Looking at the numbers more realistically, using a reasonable growth curve, Tesla will hit the 5,000 cars per week sometime in late October. By the end of the year, I’m estimating they’ll be at 6,000 per week. So, when you add the numbers, we’re at almost 83,000 by the end of 2017.

I compiled the numbers and insights for this episode from the following sources.

Annual Stockholders Meeting

Q1 Financials

Motley Fool Estimate

Factory Limitations

Delivery Details

Market Adoption S-Curve Model

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