With Tesla (NASDAQ:TSLA) expecting the Model 3 to help the electric-car maker go from delivering just over 100,000 vehicles in 2017 to "hundreds of thousands" of vehicles in 2018, investors have good reason to be watching the vehicle's production progress closely. But can Tesla hit its ambitious production targets for the important vehicle? After all, it has already missed Model 3 production targets twice.
Unsurprisingly, there are a number of websites and forums attempting to track the Model 3 production ramp-up. But one of the most high-profile trackers is Bloomberg's Tesla Model 3 Tracker. Given how various media outlets are regularly citing its tracker's forecast when discussing Tesla's weekly production rate, it's worth exploring how closely this tracker might align with management's production rate update at the end of its first quarter.
About the tracker
At the time of this writing, the Model 3 tracker says Tesla is producing just 737 Model 3s per week. If this really is the case, this is bad news; Tesla is aiming to end its first quarter, which comes to a close at the end of this month, producing 2,500 Model 3 units per week. But investors shouldn't go making conclusions yet.
Though the methodology behind Bloomberg's Model 3 production tracker, which uses Vehicle Identification Numbers (VINs) to extrapolate a forecast for Tesla's weekly production rate, is respectable, investors should realize that the tracker could be significantly off from Tesla's actual weekly production run rate. Indeed, even Bloomberg admitted on its Tesla production blog that its model "will always be wrong."
However, it's worth considering if the tracker is more likely to over- or underestimate Tesla's weekly production run rate. Chances are, it is understating the actual production run rates Tesla will report to investors.
Here are three reasons Bloomberg's tracker could be off.
1. The tracker was off significantly last quarter
Bloomberg's model shows that Tesla wrapped up 2017 producing 355 Model 3 units per week, but its reported weekly production rate at the end of the year was more than twice this rate. "[I]n the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3's per week," Tesla said in a Jan. 3 update on quarterly deliveries and production.
Furthermore, even when including the last seven working days of the quarter, Tesla said it made 793 Model 3 units during this period.
2. Bloomberg's forecast is based on an average over several weeks
Unlike any weekly production rates Tesla is likely to share, Bloomberg's estimates are based on averages over several weeks.
"Our model is designed for long-term accuracy but can be slow to adjust to sudden spikes or slowdowns -- we average our rates over several weeks in order to avoid noise in the data," explained Bloomberg's Tom Randall in a blog post about the tracker.
The downside of basing a forecast on an average over several weeks was seen in the period following Tesla's pause in Model 3 production for the purpose of upgrading equipment and automation. During this period, its weekly production appeared to pull back sharply. Even more, its temporary production pause between Feb. 20 and Feb. 24 still had a drag effect on Bloomberg's model several weeks into March.
3. Exponential growth is difficult to forecast
Since vehicle production ramp-ups occur on an S-curve, a few days can make a huge difference in weekly production rates. So, if Model 3 production increases significantly toward the end of its first quarter, Tesla's stated production rate could be significantly higher than Bloomberg's estimate.
Of course, if Tesla shares its weekly production rate based on an extrapolation of production in the last few days of the quarter (the way it updated investors at the end of its fourth quarter), the difference in Bloomberg's forecast and Tesla's stated production run rate would be even more pronounced.
Considering these arguments for why Bloomberg's model could lag the company's actual weekly production run rates, Tesla could very well be on pace to hit its Model 3 production target of 2,500 units per week by the end of the quarter even though the tracker suggests this isn't the case. Of course, Tesla could also still whiff significantly. Unfortunately, there's simply no way to know exactly how Model 3 production is faring until investors are updated directly.
Investors should treat Bloomberg's Model 3 tracker like what it is: a third-party forecast, not actual production.
Tesla typically provides an update on vehicle deliveries and production within three days after each quarter ends, so investors should look for it around April 3.