Tesla (TSLA -1.06%) is confirming to the media that it is now beginning to invite some Model 3 reservation holders that are not company employees to configure and order their cars. The news comes about one month after Tesla had initially promised this milestone, but it's in line with the automaker's recent delay in its Model 3 production timeline.
With Tesla apparently ramping up Model 3 production enough to begin converting some non-employee reservations to orders, it's a good time to review the electric-car company's expected timeline for its Model 3 production ramp-up. After all, given the significant level of Model 3 deliveries Tesla expects to achieve, the less costly vehicle's production ramp could make or break Tesla stock.
Model 3. Image source: Tesla.
Model 3 production targets this year
Since Tesla launched the Model 3 this summer, CEO Elon Musk has made it clear that it wouldn't be easy for the company to ramp-up the vehicle's production to its big targets. To this end, Tesla appropriately welcomed attendees at its Model 3 launch event to "production hell."
Tesla's goal is for the Model 3 to help the automaker's total annualized production rise from an annual run-rate of just over 100,000 units today to about 500,000 units next year -- and to 1 million units by 2020. But to get to this high-volume production, Tesla will have to first make it through the challenging portion of the expected S-curve of its production ramp. This is where Model 3 production is now.
Tesla's initial expected S-curve for Model 3 production in 2017. Chart source: Tesla.
Unfortunately, Tesla is spending more time in low-volume Model 3 production than it anticipated. The big news in Tesla's third-quarter earnings report was that the automaker delayed its target for achieving a weekly production rate for Model 3 of 5,000 units by the end of its fourth quarter to a time frame of late Q1.
So, what can Tesla achieve with Model 3 production in 2017? In Tesla's third-quarter earnings call, Musk said he expects to finish the year with a weekly production rate for Model 3 "in the thousands." While it's impossible to know if Tesla is on track with this revised target, it's a good sign that Tesla is now allowing some non-Tesla employees to convert their Model 3 reservations to orders.
Model 3 production targets next year
Expecting to come out of "production hell" sometime during the first quarter, next year will be the year Tesla begins getting Model 3 into the hands of lots of customers. Specifically, Tesla's previous guidance implied the company expects to build over 300,000 Model 3 units in 2018 (500,000 vehicles total between Model 3, Model S, and Model X) -- production that would imply around 250,000 to 280,000 Model 3's actually delivered before the year ends, with the rest of these produced Model 3 units being delivered in the beginning of 2019.
But since Tesla delayed its initial target for achieving a production rate of 5,000 Model 3 units per week by three months, it's unlikely Tesla will be able to achieve its initial forecast for 2018 production.
Model 3. Image source: Tesla.
Waiting for an update
There's still a lot of uncertainty about what Tesla expects from Model 3 production in 2018. Of course, there's a good reason for that: A production ramp-up of this scale is difficult to predict. This is why management said it would update investors on its Model 3 production ramp-up alongside its fourth-quarter production and delivery numbers, which will be announced in the first few days of January.
For Tesla to be on track with its revised timeline, investors will want to look for Tesla to be producing a few thousand Model 3 cars per week at the time of its fourth-quarter update on production and deliveries. In addition, investors should also look for an updated forecast for when Tesla expects to achieve a weekly production rate of 5,000 vehicles per week.
