Tesla's (NASDAQ:TSLA) Model 3 production is still slated to begin "later this year as planned," the company confirmed in a statement to the press this week. Furthermore, it said it's still aiming to ramp up "toward 500,000 vehicles annually in 2018." With Tesla's planned Model 3 launch not too far away, and with 2018 being just 10 months out, the update's timing may help ease some concerns about Tesla's ability to stick to its ambitious production ramp-up schedule.
Pausing production for upgrades
Tesla's update on production comes as the company plans to pause production of its Model S and X so it can install some updates ahead of Model 3 production, the electric-car maker explained in its statement.
Tesla will begin a brief, planned pause in production for a week in February to prepare for Model 3 production. During this time, we plan to add capacity to the existing paint shop so that it is ready for Model 3, and perform general maintenance on other factory equipment.
Importantly, Tesla said it doesn't expect this to negatively impact its planned first-quarter deliveries.
We do not anticipate this brief pause to have a material impact on our Q1 production or delivery figures, as we have added production days to compensate.
Tesla won't be starting from scratch on the tooling for its Model 3 paint shop. The automaker said in its second-quarter update last year that it already had some Model 3 production equipment on the line, "including initial capacity in our stamping and paint centers."
Reuters: Tesla to test-build some Model 3 units this month
Shortly after news surfaced of Tesla's plans to pause production this month to update its production and paint capabilities, Reuters said on Wednesday afternoon that Tesla is planning "to begin test-building its Model 3 sedans on Feb. 20, according to people familiar with the matter."
The timing of some Model 3 units is about in line with what investors should expect, given the company's internal target for suppliers for a production start date in July.
While Tesla CEO Elon Musk has said the company is aiming to start Model 3 production in July, investors should realize this specific date is only an internal target, appropriately ambitious so that Tesla can live up to its promise to begin volume production at some point in the second half of 2017. Musk explained this internal deadline in Tesla's second-quarter earnings call last year (via a Reuters transcript):
I don't expect us to be at full production on July 1. But I have to drive all suppliers and internal efforts to that date, knowing that some will fall short. And those that fall short will be cut out of the picture.
And if there are teams internally that fail to execute effectively, we will reorganize those teams. But if several thousand parts are not driven to a particular date, there is no chance of making any point even past that date. In an ideal world, this would be a confidential internal, July 1 would be a confidential internal target.
Given the amount of attention that Tesla receives and the fact that there are several, if you count two or three, three and four suppliers, there's several thousand companies involved. It is obviously impossible to keep that confidential. You can't.
So then in order to have a consistent message, internally knowing that that message will also reach externally, that's where the July 1 date comes from.
All Tesla has promised for Model 3's launch, production, and deliveries in 2017 is what the company said in its third-quarter shareholder letter: "Gigafactory construction and Model 3 development both remain on plan to support volume Model 3 production and deliveries in the second half of 2017." And as Tesla pauses production for some Model 3 factory upgrades and reportedly plans to produce some Model 3 units, which will presumably serve as beta test versions, the company appears to be making appropriate progress ahead of its Model 3 launch.
When Tesla reports its fourth-quarter earnings on Feb. 22, investors will likely get a more detailed update on where the company stands with Model 3, as management will likely provide a glimpse into its full-year expectations.