A Guide to Determining Tesla's Production Numbers

In July, I wrote an article predicting Tesla Motors (NASDAQ: TSLA  ) 's deliveries for the second quarter. On Aug. 7, Tesla presented its earnings and exceeded every expectation by delivering a total of 5,150 units. As a result, the stock price soared above $150 a share. In my article previous to Tesla's earnings, I estimated the deliveries to be between 5,000 units and 5,500 units.

To predict these figures, I track the Vehicle Identification Numbers (VIN) that new Model S owners release on forums.  A VIN  is a unique code including a serial number, used by the automotive industry to identify individual motor vehicles. A VIN is assigned once the car enters production or when the order is confirmed.

The last sequence of numbers in a VIN is a simple sequential number, indicating the amount of vehicles manufactured up to the individual car. Therefore, it can be used to track the number of units being produced. Since Tesla does not release monthly sales or deliveries statistics like most of its competitors, this number can be quite useful.

Tesla is ramping up production

If we take a look at this chart from Tesla enthusiast and forum contributor Craig Froehle, we can clearly see that the rate of VIN assignment is increasing considerably:

Source: Craig Froechle, found on Tesla Motors Forum.

The red line represents the rate of VIN assignment when I wrote the first article a month ago, and the blue line represents the current rate. It shows a solid improvement in a very short period of time. As of Aug. 26, Tesla was issuing VINs at a rate of 607 a week; annualized, that adds up to 31,570.

The increase coincides with the first cars being delivered in Europe. With more than a dozen locations in the EU already, I think Tesla has high hopes for this particular market. In the last earnings conference call, Elon Musk estimated the demand for the Model S at 40,000 units in 2014, half of which should come from Europe. He also insisted that the difficulties Tesla is currently facing have more to do with production than with demand. 

At this rate, it looks like Tesla is going to reach 700 units a week before the end of the year, and then the 800-unit mark sometime next year, for a total of 40,000 units in 2014. This is great news for the shareholders -- but bearish analysts following Tesla still think that the company is not growing fast enough to justify its enormous $18 billion market cap.

The BMW comparison 

The naysayers have difficulty accepting that Tesla is currently valued at one quarter of BMW (NASDAQOTH: BAMXF  ) 's $65 billion market cap. If we only consider the profits and the numbers of cars delivered, it is a difficult notion to argue. BMW is more than likely going to sell more than 1.5 million vehicles this year, while Tesla should sell slightly more than 22,000 Model S units. 

However, Tesla offers only one model, the Model S. The only comparable model from BMW is the four-door sedan 6-Series. Both cars have similar pricing, averaging in the mid $80,000s, and they both target the same market.

BMW sold 23,193 units of its 6-Series in 2012, while Tesla is poised to sell almost as much of its Model S during its first full year of production. There is nothing leading us to believe that the same thing could not happen with the future models Tesla proposes. 

BMW is not sitting on its hands. Next year, it's releasing the i3 and i8, which could provide interesting upside for the company. After all, it's still a leader in the mid-luxury and luxury car market, and it could profit from a shifting industry. 

Conclusion

The rate of VIN assignments is very encouraging for shareholders. It indicates to us that Tesla is on the right track to meet its sales goals. Ultimately, by ramping up production and securing better prices from suppliers, Tesla could even achieve a  25% gross margin. I remain bullish on the stock, and I recommend investors keep a close eye on the gross margin of the Model S. Tesla needs to get to 19% during the current quarter in order to stay on track for 25% in Q4. 

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Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2013, at 4:42 PM, ckgod wrote:

    Tesla's only model outsells Porsche's combined sales of 911, Boxter, Cayman, Panamera and Cayenne in California. That should give you some clue of the company's future when it introduces more models and starts to ship worldwide.

  • Report this Comment On August 29, 2013, at 5:28 PM, jamesdan567 wrote:

    BMW sells 1.5 million ICE cars a year. Honestly, that implies a market value of $0.00 to me, in this world. The ICE business is finished.

    Tesla sells only EV's and they sell the best ones in the world

    and nothing can stop them from ramping up. There are just so many hundreds of millions of dog ICE cars on the road, Tesla will grow rapidly into the vacuum. Everyone wants an affordable EV with enough range, style, performance, etc. That's coming. 3 years is not "soon" in my book. But we all know, that in the automotive industry, 3 years is a very short time from now.

    Who is the BMW CEO? Anyone know him?

    Who is the Tesla CEO? We all know....

  • Report this Comment On August 29, 2013, at 5:49 PM, vlstrade wrote:

    I was doing this back in December through April, also was using the reservation sequence number (which has since been randomized). I published a similar scatter plot on TMC investor section. One of the most beautiful pieces of data I've ever used in a trade!

  • Report this Comment On August 29, 2013, at 7:50 PM, AjitC wrote:

    Nice research! I think that as Tesla continues to invest in automation and related design changes as well as optimize the supply chain, the production rate next year may reach or exceed 50,000 Model S.

    Besides geographic expansion to Europe and China, the supercharger network will certainly drive demand exponentially... the network effect. Economies of scale. Then there is Model X. I do not think the analysts are pricing such upsides.

    Meanwhile, the short interest climbed to $20+M shares! With Elon controlling nearly 25% of the shares, Panasonic (10%), Toyota (10%), MB (5-10%), Fidelity (17%) and other insiders, rabid Model S owners who can afford a lot of shares, etc... there is not much to go around for the indexes, funds, individuals. Then the shorts need to buy a chunk, if they want to cover if Tesla delivers!

  • Report this Comment On August 29, 2013, at 7:52 PM, KyBear123 wrote:

    It seems like they jumped to a clean VIN from 19,150 to 19,500, probably to denote a small design change or manufacturing process change. Its called jumping to a 'clean VIN' in my automotive manufacturing experience.

    Its pretty clear that the trend line from 19,5xx to 21,xxx is not as aggresive as the supposed actual, and more in line with the estimate.

    If you drop the upper VINs by 350, you get a trendline better than estimate, but not near as great as being presented. No position, but considering catching a wave down.

  • Report this Comment On August 29, 2013, at 10:23 PM, holymolar57 wrote:

    WHO CARES - the car is an expensive DOG! Woof!

  • Report this Comment On August 29, 2013, at 10:27 PM, kca124cain wrote:

    VIN numbers, especially in the case of Tesla, are not a good indicator of production. If you look at vin numbers on the roadsters, there are huge block here and there that never were delivered.

    No real car company does not report actual production.

    This is a technique used by tech equipment companies all the time. They decide to skip a few hundred serial numbers for one reason or another. Sometimes it is to identify a change or upgrade, other times it is to fool the fools.

  • Report this Comment On August 29, 2013, at 10:36 PM, oTeslaManiax wrote:

    As of today, the VIN number tracking just moved to needle up to 620 vehicles per week...32,225 yearly...

  • Report this Comment On August 30, 2013, at 4:02 AM, eps003 wrote:

    I'm a tesla investor, but I have to say the current production rate can't justify the current hefty stock price.

    Tesla delivered 10,050 model S so far with 4900 in Q1 and 5150 in Q2. With current weekly production rate, we can expect 7,200(600*12) in Q3 and 7.920(660*12, assume 10% production increase in Q4) in Q4. The total production for Q3 and Q4 is 15,120. Due to the logistics issue of delivering to Europe, it's very likely 5-10% of Q4 production won't be recognized as deliveries. The total deliveries for 2013 will be around 24828(10,500+7,200+7,920*0.9), which is only 18% above previous estimate of 21,000 cars.

    Considering the possible risks of production delay, and suppliers' restriction, the current production rate may not be able to justify the 20B market cap.

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