Category Archives: Model 3

The case for Tesla deferring 200K until July

So I have long been arguing that Tesla would cross the 200K US vehicles barrier in 2Q18, despite optimistic estimates that they would cross it in the first quarter.  Some enthusiasts even thought they would cross it in the final few weeks of 2017!  With the latest news from Tesla, I don’t think anyone believes it will occur in the first quarter any more.

With the latest news from Tesla, there are now some people speculating that Tesla may be able to defer hitting 200K until the third quarter (July 1).  Initially I was definitely not in that camp.  In fact in my post two days ago, I specifically thought that Tesla would hit the 200K mark in late April and there was no way they would defer.

However, between new speculation on what it means that some Canadians are getting earlier delivery estimates for AWD models that even those of us in the US, combined with news that a key Ontario EV tax credit is expiring in June, and a fellow forum member who kindly reminded me that there is a lag between an increase in production at the Gigafactory and actual sales, I have revised my thinking and run the numbers.  The results indicate that it is at least plausible that Tesla may try to do this.

Here is what that would mean:

  1. As was the assumption before (prior to the extended production delays) it will be necessary to divert additional Model S and X overseas above and beyond what Tesla would normally do.  I am assuming a 20% figure.  This will be somewhat hard to swallow for US buyers due to the extremely low inventory of Model S/X already, so build times might climb past 8 weeks from order to delivery.
  2. I am assuming that a best case scenario for the new equipment to be installed and running at the Gigafactory is the end of March.  This will allow the battery module production rate to spike to 2,500 per week, but because the cars using those modules still need to be built, sent to a distribution center, prepped and actually delivered, I am assuming a four week lag before we start seeing the sales ramp hit 2,500 per week.  So I effectively moved my step-wise ramp to the right by 4 weeks.
  3. Finally the key aspect of this plan would be to divert a significant number of Model 3s to Canada.  For simplicity I assumed that up to 2,000 per week (subject to actual production rate) would be diverted to Canada, starting in April through the end of the second quarter (June 30).  This adds up to a total of 23,000 vehicles that otherwise would have been destined to the US, and effectively meaning there would be a 10 week pause in US deliveries before significant numbers were seen again.  During the second quarter, only 9,500 deliveries would be made in the US.  Of course Tesla wouldn’t have to follow this exact plan, but the effectively the numbers would have to work out roughly this way.

With those assumptions, I have Tesla selling a total of 200,246 vehicles as of June 30th, so with only a day or two of halted selling, they could defer selling #200,000 until July 1st.

This is what the ramp I’ve described looks like visually:

The drop in Model 3 sales in April and May represents the diversion to Canada.  The increase in late June represents the factory throughput kicking into high gear, not an end to the diversion to Canada.  After the end of the quarter, this rate would further increase to the full 5,000 per week (6,000 across the whole product range).

The cumulative sales look like this:

The slowdown in sales to the US is noticeable, but not tremendously so.  Of course the impact will surely be felt by those with April to June delivery estimates!

I’m certainly not at the point where I’d be willing to say this is how Tesla will play this, but there are certainly some indications that it may go this way.  As usual it will be very interested to see February sales estimates, any indication of the Model 3 ramp, and probably most importantly if and when Canadians start to get more specific delivery estimates and even invites to configure.  Certainly if we don’t see any of that happening by late March, this plan will not be put into play.  But until then, it’s something to think about.



Post-January sales update

So it has been quite awhile since my last update.  Unfortunately I had some personal matters that came up and I was not able to post a year-end summary.

At any rate, 2017 went out with a bang.  Total US sales across all manufacturers totaled 26,107 which broke the record of 24,785 set last December.  I’m sure the threat of losing the EV tax credit didn’t hurt, although buyers who want an “instant return” on their EV tax credit would normally buy in December anyway.  The end of year is also traditionally a time for sales pushes as well.

Of note, the Chevy BoltEV sold 3227 copies, and the Model S and X had great a great month with 4,975 and 3,300 estimated sales respectively.

On the Model 3 ramp, the news could have been better.  Remember that Elon Musk initially predicted 5,000 Model 3s per week by year end.  Well, the reality turned out to be significantly less than that (which I don’t think surprised anyone).

Tesla did try their best to spin the disappointing news with marketing statements (that seemed like they had the desired effect, as many took the bait) such as their manufacturing lines reached a rate that extrapolated to over 1,000 units per week during the last few days of 2017.  The reality is that the actual production during the last week of 2017 was 793 units, not the 1,000 that most people quickly reading the statement assumed.

At the end of the month, however, only 1060 Model 3s were sold, with 860 “in transit”.  Considering there were also probably a few “in transit” at the beginning of the month, we can estimate that there were probably only 1600 or so Model 3s actually produced in December.  If 793 of those were produced in the last 7 days alone (and that was probably an all out push to generate good news), it doesn’t speak so much for the volume during the rest of the month.

Nonetheless, the news is at least positive that they were able to improve the production rate so dramatically.

This puts the total US sales for Tesla at the end of 2017 at about 161,571.

So how did the January numbers turn out?  As is the case every January, the big push at the end of the year, combined with lousy weather that is typical in January and post-Christmas bills, sales were down.  Way down.  Across the board.

Sales of the Chevy BoltEV plummeted to 1,177, just over a third of what they were the month prior.

Tesla Model S and X sales were estimated to be 800 and 700 respectively, slightly below what they were last January.  Model 3 deliveries were estimated to be 1,875.  Better than December for sure, but still nowhere near the milestone of 1,000 per week.  Rumors are that the factory was shut down for the first week in January, partly to give workers some well deserved R&R after the big December push, but also to perform routine maintenance on the assembly line machinery.  But still, even if you assume 3 weeks in January, and assume the same level of vehicles “in transit”, you’re still only talking an average of 625 vehicles per week.  Still a long way to go.

I actually feel that the number of vehicles “in transit” might be higher.  The reason is that Tesla is having to build out its delivery infrastructure as well.  The first Model 3s were delivered to relatively big delivery centers in California.  Now that vehicles are being distributed across the country, not only does the transit time itself increase, but you have to ship cars to many smaller stores and delivery centers that may not have the throughput that the ones in Fremont and LA have.  However, that excuse only works once.  Now that the pipe is full, we should expect to see more consistent deliveries.

So that puts us at around 165,000 vehicles from Tesla with only 8 weeks left in the quarter.  Even if Tesla were able to produce 4,375 vehicles per week today, they wouldn’t hit 200,000 before the end of the quarter.  I think we can safely put to rest any fear that they will hit 200K this quarter.

But do we need to consider the possibility of Tesla delaying all the way until July 1 to cross that barrier?

I don’t think so.  Assuming a ramp that gets them to 2.5K/week at the end of 1Q18 and 5K/week at the end of 2Q18, I predict they will hit #200,000 around April 25.  This is far too early in the quarter to talk about deferring until 3Q.  So I put the likelihood that they will hit it in 2Q extremely high.

As for other manufacturers, I think we really need to see where sales wind up after looking at February and March.  January’s sales were just too depressed to make any meaningful predictions at this time.  In particular, will Bolt sales end up picking up where they left off?  And what about the Nissan LEAF 2.0?  How well will that sell in the US market?

Stay tuned!

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?