Posted on March 18, 2017 by Matt Pressman
This week, Tesla [NASDAQ: TSLA] CEO Elon Musk held a private conference call with a group of investors to discuss the company's recent capital raise. Electrek reports that Musk explained the capital raise as being sufficient in order to bring the Model 3 to “reasonable production levels.” At this stage, Musk noted, the Model 3s now coming out of Tesla's factory are “almost entirely built with production tooling” and they're calling these vehicles “release candidates” instead of beta prototypes. Musk added that they're expecting to be driving these release candidates “in a week or two."
Above: A Tesla fan does some beautiful Model 3 art (Instagram: toaot87)
This is good news for Model 3 reservation holders anxiously awaiting their cars. And it turns out Tesla announced that underwriters actually increased the amount of equity and convertible notes in the capital raise to $1.2 billion. Ultimately, Tesla says proceeds will help “strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of Model 3.” Neverthless, BMW execs publicly doubt Tesla. Ian Robertson, BMW’s head of sales and marketing just told Car and Driver: "The Model 3 will come, but I’m not sure of what volume it will come with, I’m not sure of the price point it will come with, and I’m not sure how good the car [will be]."
Above: Tesla Model 3 on display (Instagram: sets_oner)
Regardless, Tesla's production ramp for the Model 3 needs to be both massive and rapid compared to its prior vehicles. According to Statista, "Tesla aims to begin Model 3 production in limited quantities in July before ramping it up to 5,000 vehicles per week in Q4 2017 and 10,000 vehicles per week at some point in 2018. The below chart illustrates how big of a task this production ramp-up is for Tesla. The California carmaker delivered a combined total of 183,000 cars over the past five years but has already received 400,000 pre-orders for the more affordable Model 3. Producing hundreds of thousands of vehicles per year is uncharted territory for Tesla, which is why it needs money to rapidly expand its production capacities."
Above: Comparing prior Tesla vehicle deliveries with the new challenge associated with massive Model 3 pre-orders (Image: Statista)
Obviously not all 400,000 Model 3s will be delivered right away this year. Elon Musk explained on Tesla's recent earnings call: "when we place parts orders with our suppliers, we’ve told them 1000 a week in July, 2000 a week in August, and 4000 a week in September. These are parts orders. Then the parts need to arrive, and they need to be turned into a car and the car needs to be delivered to customers.” Electrek forecasts that, "based on Tesla’s parts orders and using a 10-day delay, we track a perfect execution [see chart below] of a Model 3 production ramp at about 80,000 units in 2017."
Above: Assuming Tesla has a "perfect" execution of their production ramp in 2017 (Source: Electrek)
Okay... so it will take some time for Model 3 reservation holders to get their cars. But, there is some good news — at least you'll get your car quicker once you go to take delivery. Musk noted on his recent investor conference call that they're streamlining the delivery process and reducing the timeframe for vehicle delivery from an hour to approximately 5 minutes. How? Tesla plans to send customers instructional videos in advance along with delivery paperwork to simplify the entire process. New customers could be in and out of a Tesla service center within minutes with their new Model 3.