Where are we on the Model 3 ramp?

The biggest question in the EV industry right now is where are we on the Tesla Model 3 ramp?

Prior to the initial handover event at the end of July, Elon Musk tweeted his prediction about the Model 3 ramp, indicating that in the first three months it would grow from 30 to 100 to “above 1500” in September.  He also went on to say that he expected to hit 5,000 per week by the end of the year.  Yes, that is exponential growth!

But like all things Elon says, you do need to take it with a grain of salt.  Clearly this is one optimistic fellow!

So how have things played out with the ramp?

Well July was in fact 30 (actually more were produced for validation purposes, but not sold).  But by the end of September, only a grand total of 260 were produced (220 of which were sold).  Well below the 1630 Elon had predicted.

Well how about October?  Did the expoential growth curve kick in last month?

Well, we can never really know for sure because Tesla does not release monthly sales figures (we will only get a fourth quarter total on or about January 2), but it seems like the answer is no.  InsideEVs predicted only 145 Model 3’s sold.  And the vast army of Tesla watchers that are in Fremont and other locales looking for VIN numbers of cars parked at the Tesla factory and car carriers being loaded (and unloaded) would tend to back that up.  We are not seeing hundreds of vehicles on the roads yet.

Do We Know Anything?

Well yes, there are a few data points we can look at.

Tesla had its third quarter earnings call on November 1, and you better believe the subject of the ramp came up.  Tesla management explained that the reason for the slower than expected ramp was due to bottlenecks in the battery pack production line at the Gigafactory in Nevada, and most specifically in “Zone 1 and Zone 2”, but particularly “Zone 2” of the pack assembly process.  Apparently there are 4 assembly zones that assemble Model 3 battery packs.  It’s a largely automated process and the packs awaiting assembly go through these 4 zones where robots work on them before proceeding to the next zone.  It turns out that zone 2 was not operating correctly, or at least not up to speed.  And since the assembly line is only as fast as its slowest step, it holds up the entire process.  To make matters worse, it’s completely automated so it’s not as simple as diverting more manpower to that step.

Now Tesla told us that they understand the issue.  They have basically had to redesign or at least rewrite the software that runs those zones.  They assure us that they would be able to bring these zones up to speed very soon, and once that happens the rest of the line is ready to ramp up quickly.  On this point I’m still a bit skeptical because I don’t believe the rest of the line has been adequately tested at full speed yet.  Fixing this issue will likely expose a new critical step that they will then have to address.  But things should continue to improve in steps.

As part of the earnings call, Tesla stated two important pieces of information:  they have revised their estimate of when they will reach the 5,000 vehicles per week from the end of 2017 to the end of first quarter 2018; and that they will postpone deciding when to add additional manufacturing capacity to bring their total run rate to 10,000 vehicles per week until they see where they are at on the existing line.  The ever optimistic Musk thinks that the existing line will be able to beat 5,000, perhaps by a significant amount, meaning they may not have to invest as much in expansion.  Let’s put that idea in our next bag of salt for now.

So management indicated what would appear to be a 3 month delay in the ramp.

Tesla reservation holders got a bit different update.  We received an email explaining that there were production issues that were delaying the expected ramp, and that while Tesla understood and was addressing the problem, our expected delivery dates would be updating and we could check our delivery estimators to get an update on our delivery.

Now my estimator previously estimated Nov ’17 – Jan ’18.  This is already an incredibly large window, and my thought was that if anything it would be at the very end of that window anyway.  I am not a Tesla, SpaceX or SolarCity employee, I am not a current Tesla owner, and I’m not on the US west coast, so I don’t get to skip any lines.  I did reserve pre-reveal, however, so that does help.  But a November estimate, even with Elon’s wildly aggressive initial prediction would have indicated I’d probably be in the first 10,000-15,000 and that deliveries would very quickly spread to the east coast.  I always thought January was a safer estimate.

But after the earnings call, my new delivery estimator only slid one month, to Dec ’17 – Feb ’18.  Now in all honesty, this could just as well been a slip from Nov ’17 to Feb ’18, or a four month slide.  But I do actually think that it represents only a single month slide in their estimate, perhaps two.

So was management just being overly cautious with their 3 month delay?  Could it be only a one month delay as indicated by the delivery estimator?

My Take

Well I am going to throw out the idea that it’s only a one month delay.  If it were only one month, we would have seen 1,000-1,500 cars produced in October.  We are simply not seeing evidence of that.

So what about November?  Can we reach any conclusions there?  Certainly until this past week there was not an elevated level of activity.  But that appears to have changed.  First there were reports of car carriers loaded with Model 3’s headed to Los Angeles.  And within the past two days there have been reports from a parking deck in Playa Vista, CA of what appears to be a staging area of Model 3s, first with “several”, then with 20, then 30, and now 50.  Again, I’ll probably take these reports with a small grain of salt simply because the person  reporting 50 stated it was “guess” and “gave up trying to count”, despite the fact that there is incredibly intense interest in the subject, and in particular collecting VIN numbers, take away some of the credibility of the report.

Nonetheless, there have been SOME pictures of VINs, one of which is #1096, and picture of a large number of Model 3s.  Now all this could simply be that they staged a big shipment to Hawthorne for SpaceX employees, explaining the recent lack of activity, and may not be an indication of an increased production rate.  However, it does seem encouraging.  And while there is evidence that VINs are not being delivered close to sequentially, the appearance of a large number of higher numbered VINs does indicate progress.

I feel this development, in addition to sightings in areas outside CA (such as Wisconsin, Atlanta, etc.), in only the middle of the month does seem to indicate the production rate has increased.  Do I feel that November will be the September that Elon envisioned?  Well, I think Tesla will have produced 1,000 cars by the end of the month.  They will probably not deliver them all.  These cars in particular are probably being staged for delivery to a sales/service center where they will be cleaned and prepped for delivery to their eventual owners.  It will probably take them some time to get through this relatively small backlog of deliveries.  So I expect sales to be in the 500-750 range.

I think that puts Tesla just over 2 months behind their ramp.  Big picture wise, hardly significant.  But I also think there will be some additional bumps in the road.  Hopefully Tesla used some of the time whereby these packs were being assembled slowly to really check out the speed of the remaining steps in the line, but at the end of the day there is no substitution for actually running the line at full speed in production.  And I expect they will move from this bottleneck limiting production to 40 cars/week to another one that may limit to 100, and then another that may limit to 400, and so on.  They will get that ramp eventually, but it’s going to be quite as steep as originally predicted.

I do think that eventually management guidance is going to prove correct in the end with a total 3 month delay.  Delivery estimator windows that already had 3 month slack in them and have since pushed out another month could still be met, but I wouldn’t be surprised to see some move out another month.

And while at the end of the month we won’t have official numbers from Tesla to go on, I do feel that we will have some better news than we did at the end of October.  I will also say that I think within another month (mid-December) non-employees will finally start to get their invitations to configure their vehicles (which for the time being will be limited to selecting their wheels and exterior color).

What are your thoughts?

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