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Can Tesla Motors, Inc.'s Vehicle Deliveries Live Up to Big Guidance?

By Daniel Sparks – Sep 28, 2016 at 10:21AM

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Tesla is aiming for enormous growth during the second half of the year, but it will need a big third quarter first.

Image source: The Motley Fool.

Electric-car maker Tesla Motors (TSLA 0.73%) started 2016 with some aggressive growth targets. The company set out to deliver 80,000 to 90,000 vehicles, up 58% to 78% compared to its 50,600 deliveries in the prior year. But lower-than-expected deliveries during the first half of 2016 put the company behind schedule, prompting management to reduce its guidance to about 79,000.

Notably, however, Tesla's revised guidance still represents significant growth -- particularly when investors consider this guidance will require about 50,000 deliveries in the second half of the year. Can Tesla really pull this sort of growth off?

Investors will get a glimpse into the prospects for Tesla to meet its aggressive delivery targets in 2016 when the company reports third-quarter deliveries. Promising to share quarterly vehicle deliveries with investors within three days of the quarter's close, Tesla should announce third-quarter deliveries at some point between this Friday and next Monday.

Here's what investors should know before Tesla shares its latest quarterly delivery numbers.

Getting to 79,000 vehicles

The growth in vehicles required for Tesla to hit its revised guidance for about 79,000 vehicles in 2016 is substantial. For perspective, this will require a 72% year-over-year increase in second-half deliveries, and a 71% increase compared to the deliveries in the first half of 2016.

For a visual, the required second-half deliveries for Tesla to hit its revised year-end guidance would imply a growth trajectory that looks something like this:

Data retrieved from Tesla SEC filings and quarterly press releases. Asterisk indicates author estimate based on management comments. Chart source: Author.

This sort of growth won't be easy. But Tesla's recent progress with production suggests it may be possible.

Bottleneck solved

Wrapping up Q2, Tesla had importantly solved its biggest bottleneck for growing vehicle deliveries: Model X production. The late-2015 launched SUV saw production improve dramatically toward the end of Q2. And Tesla confirmed in its second-quarter shareholder letter that production and demand for its vehicles were both on track for 50,000 deliveries in the second half of the year.

Model X production at Tesla's factory in Fremont, California. Image source: The Motley Fool.

With Model X production constraints resolved, Tesla looks set for a big quarter. And if my tour of Tesla's factory on August 31, in which the company was still producing vehicles at a rate of 2,000 per week, is further proof of how production is fairing, it's looking like Tesla should be able to easily deliver around 20,000 to 23,000 vehicles during the quarter, depending on how many are in transit for fourth-quarter deliveries when the third quarter ends.

In short, rising Model X production looks poised to help Tesla easily trump its previous quarterly record for vehicle deliveries of 17,500 vehicles.

The question, however, is if Q3 will be big enough to make 50,000 total vehicle deliveries in the second half seem within reach. Anything less than 21,000 deliveries for Q3 may not be enough to convince investors that Tesla can deliver enough cars in Q4 for the company to hit its revised full-year guidance.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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