March 01, 2023

Tesla Model 3: No matter how much we anti-sell it, it just grows every week

So what's really happening with the Model 3? That's exactly what analysts were trying to uncover during Tesla's first quarter 2017 financial results and conference call* yesterday. Much to the dismay of Tesla [NASDAQ: TSLA] bears and shorts on Wall Street, Elon Musk reaffirmed that the Model 3 remains on-track to begin production in July. And, its reservations are growing. Musk revealed that the Tesla Model 3 order book "grows every week, no matter how much we anti-sell it, it just grows every week." He emphasized, “Our net reservations continues to climb week after week... No advertising. Anti-selling. Nothing to test drive. Still grows every week.”

Above: A Tesla Model 3 spy shot (Image: Electrek)

Musk explained that there are "17 million cars sold in the US. Only 100,000 of that is premium sedans. Tesla has a 1/3 market share of that." If you consider that Tesla could replicate that kind of market share in other vehicle segments (including where the mass market Model 3 competes), the future could turn out to be pretty exciting for the brand. In any event, there was plenty of big news that came out of yesterday's earnings report (recapped below) but let's kick things off with what everyone was clamoring for — the much-anticipated Model 3 update...

Tesla Model 3

Tesla wrote in their shareholder's letter that "Model 3 [remains] on track for initial production in July... [and] vehicle development is nearly complete as we approach the start of production. Release Candidate vehicles, built using production-intent tooling and processes, are being tested to assess fit and finish, to support vehicle software development and to ensure a smooth and predictable homologation process. Road testing is also underway to refine driving dynamics and ensure vehicle durability."

Above: Spy video of Tesla road testing its Model 3 release candidates as far away as Cincinnati (Youtube: Driving the Future via Instagram / @jordanhart88)

On the conference call, Musk was grilled on any potential delays he foresees for Model 3 production and he said (again and again) that he didn't know of anything that would stop Tesla from starting Model 3 production in July. He reaffirmed that the Model 3 was designed to for easy manufacturing, "to be easy to make," and that Tesla had a much better supplier "A" team in place. Musk explained that the total man hours spent building Model 3 was the same as for the S and X, even though it will have 4-5 times the volume.

Tesla Factory

Tesla wrote that its: "production facilities are on track to support the ramp of Model 3 production to 5,000 vehicles per week at some point in 2017, and [grow] to 10,000 vehicles per week at some point in 2018. We recently powered on our newest Schuler press line, and have started the commissioning process. This will allow sufficient time to install and tune die sets ahead of volume production. Paint shop preparation has been completed and installations of our dedicated Model 3 body welding and general assembly lines are progressing well. Equipment installation is also underway for volume manufacturing of cells, modules, battery packs and drive units... [Tesla is] working closely with all Model 3 suppliers to ensure their readiness ahead of start of production."

Above: Tesla's massive Schuler press is seven stories tall and is responsible for stamping out Tesla's aluminum body panels (Source: Business Insider)

On the conference call, Musk said he believes that Tesla's "machine that makes the machine" next-genertion production line for the Model 3 will be roughly comparable with the best vehicle production lines in the world, and, with further iteration will become even better than the best vehicle production line. And bigger, future changes will occur with the Model Y factory production line, with major changes underway for Tesla's production-related software. Musk explained, "there will be nothing close to it... This is going to be a very difficult thing for other manufacturers to copy. I would not know what to do if I were in their position."

Model Y and Tesla Bus

Musk announced that he expects the Model Y will come out in 2020 (or late 2019) and that the Model Y will be needed in order to hit Tesla's target of one million units by 2020. He also noted that the "Model Y will be made on a different platform than the Model 3." It will no longer include a standard 12V and will have a completely new wiring harness — the Model Y wiring harness will be 100m compared to 1500m for Model 3, and 3000m for the Model S. Although he appeared confident in his outlook for Model Y, Musk seemed to back off from his Tesla Bus idea due to his recent plans (described in greater detail during his Ted Talk) for car sharing, vehicle autonomy, and underground tunnels.

Above: The forthcoming Model Y will complete Tesla's tongue-in-cheek "S≡XY" acronym (Image: Elon Musk News)

Tesla Semi and Pickup Truck

Musk explained that he's "absolutely confident that electric powertrains will occupy every [vehicle] segment, without exception." This will include the Tesla Semi but surprisingly "most of that Semi is actually made out of Model 3 parts... it's actually using a bunch of Model 3 motors." He elaborated, "We're able to use a very high volume vehicle [the Model 3] and combine several to have something that is going to have very high gross margin. Can't do that with traditional trucks so it allows us to come out with a very compelling product that has low unit cost... the incremental cost of building [one] that is much less than it might seem." Musk also noted that Tesla's pickup truck could arrive fairly soon after its Semi.

Above: Teaser image of the new Tesla Semi truck (Image: Electrek)

Tesla Model S and Model X

Musk mentioned some confusion in the marketplace understanding the differences between the Model S and Model 3. And although the Model X continues to grow, Musk admitted that the Model 3 was indeed "impacting" the Model S. Our take — it's certainly conceivable that some cannibalization of Model S sales could eventually take place based on the massive interest surrounding the Model 3. Nevertheless, he forecasted that "we will be able to produce 100,000 units [of the Model S and Model X] this year — the question is will there be 100,000 units of demand, and I think there will." In addition, he noted that the company's focus for S and X is production efficiency, quality, material costs, and Tesla's goal to expand automotive gross margin, for its premium vehicles, to 30%.

Above: Tesla Model X and Model S (Instagram: autos_design)

Superchargers, Service Centers, Stores, and Tesla Body Shops

Tesla reiterated its mission to double its charging infrastructure this year. And the company wrote that it plans, "to add nearly 100 retail, delivery and service locations globally, representing an approximately 30% increase in facilities... [and in order] to significantly improve the customer experience with out-of-warranty body repairs, we intend to open the first Tesla-owned body repair shops later this year and expand the existing network of third-party Tesla certified body shops... [and] we also plan to add more than 100 mobile repair trucks in Q2 alone."

Above: Tesla is scaling distribution with larger delivery hubs (Source: Tesla*)

President Jon McNeill noted that Tesla service centers would be scaling to have 40, 60, (even) 80 lifts to accommodate the company's massive growth ahead. Tesla wrote that its "new facilities are generally larger than they were in the past. For example, new service locations commonly have many more service bays, and we have tested the implementation of large delivery hubs in Los Angeles, San Francisco, Hong Kong and Beijing. Delivery hubs create an exciting reception for new customers and support much higher delivery levels, so we plan to expand this customer experience to more cities."

Tesla Energy

On the conference call, Musk forecasted a dramatic ramp in deployment in energy storage by the end of the year. He predicted that energy storage will (soon) consistently grow faster than Tesla's car business quarter over quarter. Tesla wrote, "Our energy generation and storage business is positioned for accelerating growth later this year, and we continue to be confident about achieving the cost synergies and cash generation targets established when we acquired SolarCity."

Above: Tesla's solar roof with a Model X parked in the driveway next to Tesla Powerwalls (Source: Tesla*)

Tesla also wrote that it, "tested sales of our solar and storage products in several Tesla stores, and saw sales productivity improve 50% to 100% relative to the best non-Tesla retail locations. Based on these results, we are working towards fully staffing more than 70 Tesla stores in the U.S. and abroad with dedicated Tesla energy sales people... [and] plan to start pilot manufacturing of Solar Roof tiles in Q2 at our Fremont facility. Shortly thereafter, production will transition to Gigafactory 2 in Buffalo, New York. Our partner, Panasonic, will provide capital and operational support to manufacture photovoltaic (PV) cells, thus enabling high volume integrated tile and PV cell production at a single facility."

Financial Forecast

Tesla recapped an excellent first quarter, noting that: "Vehicle production in Q1 increased by 64% compared to a year ago, which enabled us to set new quarterly records of 25,051 deliveries and $2.7 billion in GAAP revenue... [and the company's] first half outlook remains unchanged at 47,000 to 50,000 deliveries, which represents 61% to 71% annual vehicle delivery growth."

Above: The Tesla line-up at the Gigafactory (Image: Motor Trend)

As for the remainder of the year, Tesla concluded that it, "will provide guidance on vehicle deliveries for the second half of this year after we have started Model 3 production in July... This year will have many major milestones for Tesla with the introduction of innovative products that advance electric transport as well as energy generation and storage. We remain confident in our 2017 plan and long-term mission of accelerating the world’s transition to sustainable energy."