Model S (left) and Model X (right). Image source: The Motley Fool.
Launching its all-electric Model X SUV just over a year ago, Tesla Motors (TSLA +2.45%) has now had some time to ramp up production of the important vehicle. But with Model X deliveries in Q3 still increasing rapidly over Q2, estimating fourth-quarter deliveries of the SUV isn't a straightforward task. However, a look at some information provided by the company can help investors at least put a finger on a reasonable range to expect from Model X deliveries during the quarter.
Growth is expected -- but how much?
In Q3, Tesla's Model X deliveries jumped 89% sequentially. With third-quarter growth like this, it's likely growth in Model X deliveries will continue in Q4. But by how much should investors expect Model X deliveries to increase?
Data for chart retrieved from quarterly SEC filings for quarters shown. Chart source: Author.
Two things Tesla has said give investors some color on what to expect in Q4 from Model X:
- Tesla said in its third-quarter shareholder letter that it expects to deliver "just over 25,000" vehicles in Q4, or just a few hundred more than it delivered in Q3.
- Tesla emphasized in its second-quarter earnings call that it's "trying to balance the mix [between Model X and Model S deliveries] to be roughly half X and S."
Of Tesla's expected 25,000 deliveries, then, it's likely the company will use its fourth quarter as an opportunity to continue catching up to Model X demand, shifting more production toward the newer SUV. In other words, I'm expecting Model S deliveries to pull back slightly as Model X deliveries continue to rise. In total, I'm expecting Tesla to deliver about 10,000 to 12,000 Model X units.
Demand for Model X shouldn't be an issue. Not only is production still catching up to demand, but Tesla has recently made a number of moves aimed to increase demand for the vehicle. For instance, the company introduced a version of Model X with a larger battery and a zero-to-sixty time of 2.9 seconds, version 8.0 of Tesla's software, an option for foldable second-row seats, and a new suite of sensors for enhanced Autopilot.
Why Model X is important
Model X is key to Tesla's success for several reasons.
Model X body assembly line. Image source: The Motley Fool.
First, Model X could substantially boost Tesla's sales. With the large luxury SUV market three times the size of Model S's large luxury sedan category, Tesla is likely hoping it can capture a larger piece of this proven market.
Further, as Tesla's last new vehicle before its important Model 3 launch in the second half of 2017, higher Model X deliveries will help Tesla achieve greater scale, and likely turn the new vehicle into a cash contributor for the company. With Model 3's production ramp-up sure to be very capital-intensive, both Model S and Model X will need to generate regular operating cash flow to help fund Tesla's Model 3 expansion.
Tesla will announce its third-quarter vehicle during the first few days of January, following the fourth quarter's last day on December 31.
