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Tesla Halves Model 3 Wait Time

By Daniel Sparks - May 22, 2018 at 8:36AM

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As Model 3 production is improving, so is the vehicle's estimated delivery timeframe.

Electric-car company Tesla (TSLA 4.53%) appears to be playing some catch-up after falling about six months behind its initial production targets for its important Model 3 vehicle. Over the weekend, Tesla reduced its wait time for new reservations for the rear-wheel drive, long-range battery version of the Model 3 in the U.S. from a wait time of 12 to 18 months to a new wait time of just four to six months, as reported by Electrek. 

The shorter estimated delivery wait time for new Model 3 reservations provides another sign that Tesla's production rate for the important vehicle is surging higher.

A woman unlocks her Model 3 with a Tesla app on her smartphone

Model 3. Image source: Tesla.

Get a Model 3 in as little as four months

Tesla's updated wait times for its important Model 3 come alongside some announcements over the weekend about the availability and specifications of new Model 3 versions, including a dual-motor, long-range battery version and a performance version. In addition, Tesla also provided an updated timeline for its lowest-cost, standard-battery version of the vehicle.

Tesla said the new wait time for both its long-range and dual-motor version and its performance version of the Model 3 is now six to nine months, down from 12 to 18 months previously. The new wait time for its standard-battery Model 3 is six to 12 months, down from 12 to 18 months before.

The most interesting new timeline, though, is the significant cut to the wait time for the Model 3 vehicle currently in production: the rear-wheel drive, long-range Model 3. New customers who make reservations today are now only having to wait as little as four months, down from a minimum wait time of 12 months before, and this could solicit more demand for the vehicle from customers who wanted a vehicle sooner.

Soaring production

Tesla's shorter wait times offer more signs of improving Model 3 production -- a narrative investors are watching closely. Initially, Tesla aimed to finish 2017 producing 5,000 Model 3s per week. But Tesla delayed this target by about three months two times. Management is now aiming to achieve this important milestone around the end of its second quarter, which ends on the last day of June.

In the fourth quarter of 2017, Tesla produced only 2,425 Model 3 units, but quarterly Model 3 production jumped to 9,766 units in the first quarter. More importantly, Tesla wrapped up the quarter building about 2,000 Model 3s per week.

Earlier this month, Tesla CEO Elon Musk said in an email to employees that it was "looking quite likely that we will exceed 500 vehicles per day across all Model 3 production zones this week." Translating to a weekly production rate of 3,500 units, this update on Tesla's production was the first meaningful evidence that the electric-car company could actually achieve its ambitious target production rate of 5,000 Model 3s per week by around the end of Tesla's second quarter.

Now Tesla's decision to shorten the expected Model 3 wait times for new reservation holders adds another reason to believe the key vehicle's production rate is accelerating rapidly.

Investors are eager for Tesla to achieve its target Model 3 production rate of 5,000 units per week because management has indicated that this volume is tied to the automaker's ability to achieve profitability, as management explained in Tesla's first-quarter shareholder letter: 

If we execute according to our plans, we will at least achieve positive net income excluding non-cash stock based compensation in Q3 and Q4 and we expect to also achieve full GAAP profitability in each of these quarters. This is primarily based on our ability to reach Model 3 production volume of 5,000 units per week and to grow Model 3 gross margin from slightly negative in Q1 2018 to close to breakeven in Q2 and then to highly positive in Q3 and Q4.

With a loss per share of $4.19 in its first quarter, worse than a loss per share of $2.04 in the year-ago quarter, it's no wonder Tesla's Model 3 production rate is under intense scrutiny. Fortunately, Tesla looks like it's on track -- at least for now.

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