Electric-car maker Tesla's (NASDAQ:TSLA) sequential growth in vehicle sales came to a halt in the company's first quarter of 2018 as Model S and X deliveries pulled back and Model 3 deliveries were still ramping up. Even on a trailing-12-month basis, Tesla's vehicle sales growth has slowed recently. But this trend is about to change quite dramatically.
Though Tesla has been running about six months behind its initial target for achieving a Model 3 production rate of 5,000 units per week, the automaker has mostly stayed on track since it recalibrated its targets earlier this year. Model 3 production and deliveries are soaring.
The specifics, of course, are what Tesla investors are most interested in. Sure, there's no denying Tesla's rapidly rising Model 3 production and deliveries. But what production rate did Tesla finish the quarter at? And how many Model 3s did Tesla deliver during the quarter?
Investors will get answers to these questions next week. But while we wait for Tesla's quarterly update on vehicle production and deliveries, here's a preview of what to expect.
A wild-card quarter
It's fairly easy to make an educated guess at Tesla's second-quarter Model S and X deliveries. Combined deliveries for the two vehicles has trended between approximately 22,000 and 26,000 since the third quarter of 2016. So, any variation outside of this range is unlikely. In addition, management gave investors a more specific forecast during Tesla's first-quarter shareholder letter, predicting combined Model S and X deliveries to be similar to its first-quarter deliveries of 21,815.
But estimating Model 3 deliveries for the period is a far more difficult task. Sure, Tesla said it kicked off the quarter sustaining a production rate above 2,000 Model 3 vehicles per week for three weeks straight. But how production fared the rest of the quarter is still shrouded in mystery. For instance, though we know Tesla shut down vehicle production for about 10 days during the quarter to address bottlenecks and boost its production capacity, it's unclear how rapidly Tesla was able to ramp up Model 3 production after it updated its factory tooling.
In addition, though Tesla CEO Elon Musk said the company would likely hit its target for a Model 3 production rate of 5,000 units per week around the end of the quarter, the timing of this production ramp could have a significant impact on how many Model 3 vehicles Tesla was able to ship during the quarter. This is especially true, since the time it takes to deliver a Model 3 after it is built varies by region. Even within the U.S., the delivery time for a vehicle in California can be as much as a few weeks different than the time it takes to deliver on the East Coast -- especially after accounting for variations in the weather and customer availability.
When production from one quarter to the next is fairly stable, the timing of deliveries has less of an impact on the variability of a quarter's deliveries. But when production is growing exponentially, shipment times could make a big difference in total deliveries during the quarter.
What makes forecasting Model 3 deliveries even more difficult is that Model 3 production could temporarily pull back in some weeks, in addition to Tesla's occasional factory shutdowns, as the company addresses bottlenecks or makes incremental changes.
A wild guess
With these caveats in mind, a forecast for Tesla's Model 3 deliveries could fall into a very wide range. Considering the 2,040 Model 3 vehicles in transit to customers at the end of Tesla's first quarter, Tesla's 10-day factory shutdown during its second quarter, and an estimated average weekly production rate of 2,000 to 2,400 Model 3 units for the remaining weeks in the quarter in which a Model 3 can be both produced and delivered, second-quarter Model 3 deliveries could be as low as 21,000 or as high as 29,000 units.
The takeaway here is not an informed range to expect Model 3 deliveries to fall into during the quarter. Even this range could over- or underestimate Model 3 deliveries. The point is to recognize the immense uncertainty surrounding quarterly Model 3 deliveries. Investors should avoid giving Model 3 forecasts much weight in their analysis until they have more information.
Nevertheless, if Model 3 vehicles were to fall into this range, Tesla's total vehicle deliveries during Q2 could be between about 43,000 and 51,000 units. Of course, even the low end of this guidance range could prove too aggressive if Model S and X deliveries come in lower than anticipated for the quarter.
Highlighting Tesla's strong growth, the low end of this guidance range implies about 43% and 95% sequential and year-over-year growth in total deliveries, respectively. How many vehicles Tesla delivers during the quarter is extremely unclear. But here's what we know with near certainty: Tesla will likely post record second-quarter deliveries and very sharp growth.
The company reports its quarterly deliveries within the first three calendar days after a quarter has ended. So investors can expect to get an update on vehicle production and deliveries before July 4.