Are Tesla’s Model 3 Goals Too Ambitious?

Tesla’s Model 3 is clearly poised to raise the bar high above other electric cars, but in order to hit ambitious production goals the company will have to stretch like no one before it.

In 2015 Tesla’s Fremont, Calif. plant produced around 52,000 cars for global distribution, in 2016 it jumped to 84,000, this year it’s on track for 111,000, and the year following it’s projected 500,000.

It’s been a story of raising limits annually, but next year’s five-fold increase will be something to behold if it comes to pass, say analysts.

Underlying Facts

Of an estimated half-million 2018 cars hoped for and comprised of Model S, Model X and Model 3, it’s believed a good 400,000 or 80 percent will be the entry level Model 3 whose base $36,000 price and 220 mile range has lined up half a million reservation holders.

The massive increase was projected in May 2016 by CEO Elon Musk, and since then the company has fine-tuned estimates on what it hopes to see.

A goal such as it has set is daunting, and Tesla has admitted it will be a tortuous test of production capability for the plant in Fremont.

According to analyst Alan Baum, while demand is there, and he’s optimistic Tesla could sell more Model 3s if it could make them, in question is what is really likely to happen.

Given myriad data collected, and combined with Tesla’s most-recent statements, a more probable worldwide production number will be 245,000 units in 2018, Baum said, or around half of the shoot-for-the-stars goal Tesla has teased investors with.

In 2019, barring further indicators the company can spool up the revitalized plant it bought late last decade, Baum estimates 280,000 – still well short.

While it’s believed Tesla has been looking at increasing its production plants from just the one in California, for now, Fremont is the global production center.

In its heyday, when managed under Toyota’s leadership in joint venture with General Motors, the NUMMI plant as it was called, produced a maximum 429,000 Toyota Corollas, Pontiac Vibes and Toyota Tacomas.

At the time it was using more square footage than Tesla is using and meanwhile Tesla is off to a halting start.

The Model 3 was released a couple months back, and since then less than 300 have been produced if a less-than-positive indicator based on the fact VIN number 269 was recently reported is a semi-reliable gauge.

Weekly Rate

This month Tesla may produce about 5,200 Model S units, 3,100 Model X units, and a paltry number of Model 3s meaning for the month it could produce maybe 8,400 for a per-week average of 2,100 total cars.

An estimated less than 300 Model 3s produced so far is small, but probably on track as Tesla prepares to kick production to Ludicrous Speed. The company said it would produce 30 Model 3s in July, 100 in August, and begin this month to ramp up exponentially so it may be in process, if a bit behind the curve.

By the fourth quarter, Tesla’s most-recent statement is that it will crest to 5,000 total cars per week including Model S, X and 3, so it has its work cut out for it, as it has said.

For December, Baum figures the company could be up to 12,800 total units, or 3,200 per week, well short of the 5,000. Said 5,000 by the way is supposed to be just a way marker on the path toward 10,000 units per week Tesla says it will hit “sometime next year.”

So, even by Tesla’s own most-recent statements, it will need to seriously pick up the pace come January. If it beats Baum’s estimate and does produce 5,000 per week in the fourth quarter, it will need to hit 10,000 weekly almost immediately in 2018 – a doubling when it really takes a progressive amount of time to increase units out the door.

The reason 10,000 weekly units are needed is multiplied by 48 weeks that would come to 480,000 and Tesla’s half million goal in 2018 is essentially met.

Others besides have raised their eyebrows at what Tesla aspires to do so quickly. If it manages to do so, it will mean also the Fremont plant exceeds the best Toyota and GM ever did in a plant that produced 373,000 units in 1999, 395,000 units in 2003, 417,000 units in 2005, and the peak 429,000 in 2006.

Furthermore, the cars Toyota and GM built were not luxury performance models, but all high-volume units – GEO Prizms, Toyota Corollas and Tacoma pickups, and Pontiac Vibes.

Today the biggest plant in the U.S. is Nissan’s Smyrna, Tenn facility. With its years of expertise, it has built up to 650,000 units in 2016, and Honda’s 30-year-experienced Marysville, Ohio plant comes in next at 437,000 in 2016.

But Tesla says in one year it will take production of its cars from less than 90,000 to more than Honda’s Marysville plant or the NUMMI plant at its peak under Toyota’s guidance.

Still Impressive

Tesla has set impressive goals for itself, and knows it will have to do more to make them.

If it even does just half of the half-million units next year it will have done what no other electric car maker has done, and far exceed its competitors.

Looking just at U.S. sales, Baum estimates in 2018 the Model 3 will sell a phenomenal volume of 105,500 – more than Model S and X did globally in 2016, and far above any other plug-in electrified car.

Current U.S. sales estimates. Subject to revision with new data as it comes. Source: Baum and Associates.

Sales of 105,000 units breaks out to a theoretical 8,750 units monthly and this volume is more the stuff of the Ford Fusions, Honda Civics, Toyota Camrys of the world, and well above the Model 3’s actual competitors.

The Model 3 targets entry level Audis, BMW, Mercedes, and other U.S. and Japanese luxury performance cars. No direct competitive model does 100,000-plus annual sales in the U.S.

What’s more, in 2019, the Model 3 rockets further ahead, even under Baum’s conservative estimate, to 162,500, or 13,542 units per month on average.

If Tesla pulls that off, it will be beating the best year for the top-selling Chevy Volt every two months of sales and the Bolt EV General Motors developed as an ostensible Model 3 competitor also will be eclipsed by a similar margin, according to Baum’s estimates.

Looking Ahead

These are heady times for Tesla and the EV market as the maverick company looks to be on track to blast through a glass ceiling even if it only makes half its lofty goal.

Baum said he is confident Tesla could indeed sell 400,000 Model 3s annually if it could produce them, noting over the next 2-4 years battery costs will continue to decline, production processes will improve, and costs will improve for Tesla.

It will also put the company far out in front of major automakers who are watching the live experiment Tesla is performing. Most establish automakers have announced big plans, but with ramp up times into the 2020s, and they will be free to partake of their own expertise and supply and production advantages as the case may be.

In question is how aggressively might, say, the VW Group or Daimler’s new EQ brand, or even GM, BMW, Honda or Nissan be willing or able to follow a runaway success Tesla aspires to prove.

Those and other open questions are free for speculation. More certain is Tesla is shooting for a tall order indeed, may not fill it, but is moving the dial significantly nonetheless.


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