Electric-car maker Tesla Motors' (TSLA +2.40%) upcoming $35,000 Model 3 is very important, if not critical, for the company's success. Pairing Tesla's massive under-construction Gigafactory and plans for production capacity to support hundreds of thousands of Model 3s, Tesla is essentially betting the company on the vehicle.
Model 3. Image source: Tesla Motors.
Given Model 3's integral role in an investing thesis for Tesla stock, it's important for investors to keep tabs on what management is saying about the vehicle ahead of its planned launch in the second half of 2017.
On that note, here's some of management's recent commentary on Model 3.
Suppliers believe in the Model 3
If Tesla's comments about its supplier relationships for the Model 3 program are any indication of suppliers' dedication, these important stakeholders clearly seem to be betting Tesla's first mass-market vehicle will be a success.
Tesla CFO Jason Wheeler and CEO Elon Musk spoke of suppliers' willingness to work with Tesla in the company's most recent earnings call (via a Reuters transcript):
Wheeler: And we are actively looking to increase terms with suppliers, and I think as our production has been more predictable, our suppliers have been much more open to that conversation.
Musk: In fact -- thanks for making that point, Jason. ... So, the terms that we're getting from suppliers are significantly better, almost 60 days. As we've had to about 40 or 45 days for S and X...
Later in the call, Musk excitedly commented on suppliers' overall commitment to the program:
We see very strong supplier commitments on Model 3. We don't see any deficit in supply commitments there. They're very strong. This is the most interesting vehicle program, maybe the most interesting product program in the world. And so suppliers really want to be a part of something like this.
Investors are likely particularly interested in Tesla's ability to execute well when it comes to logistics and supplier relationships since these are areas that held back initial Model X production after the vehicle launched in late 2015.
Model 3 is designed to scale
Musk also emphasized during the company's third-quarter earnings call that the Model 3 production strategy is designed from ground up to scale:
I think it's worth emphasizing that for Model 3, but the Model 3 system is designed so that -- the whole manufacturing supply chain system is designed so that the faster Model 3 production grows, the faster Tesla's cash balance grows. ... So the net effect is that instead of growth being a capital consumer, growth is a capital producer.
Spending is about to jump
So far, Tesla has averaged about $250 million a quarter on capital expenditures -- a conservative figure considering Tesla anticipated spending about $2.25 billion during the entire year. But higher spending is around the corner.
Capital expenditures will increase "as Model 3 start to ramp in Q4," Wheeler said during Tesla's third-quarter earnings call.
Tesla expects volume production in 2017
It's been clear for some time that Tesla planned to begin delivering its Model 3 in late 2017, but now management seems to be more optimistic about the program, saying Model 3 is on track for volume deliveries during the second half of the year.
Model 3. Image source: Tesla Motors.
"Gigafactory construction and Model 3 development both remain on plan to support volume Model 3 production and deliveries in the second half of 2017," management said in the company's most recent quarterly shareholder letter.
With the help of Model 3, Tesla expects total annual vehicle production to increase from its current annualized run-rate of 100,000 units, to 500,000 units in 2018. While Tesla is confident in its plans for this ambitious growth, investors should continue to keep an eye on execution, particularly as Tesla begins more significant investments in its production capacity for Model 3.
