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How Many Vehicles Will Tesla, Inc. Sell in Q3?

By Daniel Sparks - Sep 10, 2018 at 7:21PM

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It's going to be another wildcard quarter.

Electric-car company Tesla's (TSLA 7.33%) vehicle deliveries have been soaring. In the second quarter, deliveries were up 85% year over year and 36% sequentially. This sharp growth in vehicle deliveries, of course, was fueled by rapidly rising production and sales of the company's popular Model 3.

But Tesla's record second-quarter deliveries were only the tip of the iceberg compared to where the automaker thinks vehicle sales are headed. Eventually, Tesla believes it will be able to produce and sell 10,000 Model 3 units per week, helping quarterly vehicle deliveries go through the roof compared to the 40,768 units delivered in Q2. While Tesla still has a long way to go before production and deliveries climb this high, it's poised to see some uncanny growth in Q3.

A woman checking in a white Model S to a Tesla employee

Model S. Image source: Tesla.https://teslamotors.app.box.com/v/pressfiles/file/195768956322 password tesla1press

What to expect in Q3

For Tesla's third quarter, management forecast it would build 50,000 to 55,000 Model 3 units, with deliveries exceeding these figures. Combining this with its outlook for Model S and Model X deliveries to accelerate in the second half of the year, it essentially guided for deliveries between about 73,000 and 83,000 units.

But a more recent update from Tesla CEO Elon Musk implies deliveries are likely at the high end of this range.

"We are about to have the most amazing quarter in our history, building and delivering more than twice as many cars as we did last quarter," Musk said in a letter to employees on Sept. 7 posted on the company's blog. With only a few weeks left in the quarter when Musk shared this update, the CEO obviously had far more vision into the quarter than management did when it provided its previous forecast for the quarter on Aug. 1

If Musk's more recent forecast proves to be true, deliveries during the quarter would be around 82,000 units or more.

Of course, given Tesla's tendency to miss its own forecasts, investors shouldn't consider 82,000 deliveries to be in the bag. Not only is Musk often overly optimistic, but there's still time in the quarter; he may not have fully factored in the possibility of unexpected manufacturing issues in his forecast for deliveries during the remaining weeks.

When considering both Tesla's forecast with Musk's tendency to be overly optimistic, a reasonable estimate for third-quarter deliveries is between 70,000 and 80,000 units. Notably, even the low end of this guidance range represents a 72% sequential jump in deliveries and a massive 168% year-over-year increase.

A path to profits

Tesla's third-quarter deliveries are so important because the automaker needs to achieve higher-volume Model 3 production and deliveries to begin sustainably producing profits and positive cash flow.

Improved economies of scale for Model 3 couldn't come soon enough. In Tesla's second quarter, free cash flow -- or cash provided by operating activities less capital expenditures -- was negative $740 million. 

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