Headed into electric-car maker Tesla's (NASDAQ:TSLA) third-quarter update on vehicle production and deliveries next week, the big question is: How many Model 3s will the company deliver during the important period? After all, Tesla has said a significant ramp-up in Model 3 production and deliveries during the quarter can help the automaker achieve profitability and positive cash flow -- an important milestone after a six-month period of $1.8 billion of negative free cash flow.
But investors shouldn't underestimate the importance of Tesla's sales of its pricier, older models -- Model S and X. With higher average selling prices than Model 3, the two vehicles continue to represent a significant portion of revenue and the bulk of Tesla's gross profit.
With this said, how many Model S and X vehicles can investors expect Tesla to deliver in Q3? Could management's focus on its aggressive Model 3 production ramp negatively affect production and sales of Model S and X?
A temporary pullback -- hopefully
In Tesla's first and second quarters of 2018, Model S and Model X deliveries fell sharply from levels seen in the second half of 2017. Combined Model S and X deliveries in the second half of 2017 were over 54,000 units, but deliveries of the two vehicles in the first half of 2018 were just over 44,000 units.
At first glance, this may look like a red flag, but Tesla has said that a decision to smooth out its quarter-to-quarter delivery cadence has negatively affected deliveries of Model S and X during the first half of the year. Backing up this explanation, Tesla said in its Aug. 1 second-quarter shareholder letter that it anticipated full-year Model S and X deliveries to be about 100,000 despite delivering only about 44,000 Model S and X during the first half of the year. Deliveries, Tesla explained, would reaccelerate as the company's delivery pattern smooths out.
A forecast for 100,000 Model S and X deliveries leaves about 56,000 Model S and X units left for Tesla to deliver in the second half of the year -- an unprecedented volume for the two vehicles.
Of course, Tesla's pattern of missed targets recently means deliveries at this level are far from guaranteed, but given that management published its most recent forecast for full-year Model S and X deliveries one month into its third quarter, investors can give weight to the guidance. A slight uptick in Model S and X deliveries in Q3, therefore, is likely.
What about demand?
One natural concern some Tesla investors may have is whether or not fast-growing Model 3 production and deliveries are cannibalizing demand for the company's pricier Models S and X. Tesla's latest updates on Model S and X demand, though, suggest this isn't the case.
"Demand for Model S and Model X vehicles remains high, with Q2 2018 being our highest ever Q2 for Model S and Model X orders," Tesla said in its second-quarter update.
Considering all of this information, investors can expect third-quarter Model S and X deliveries to be at least slightly above the 22,319 Model S and X units Tesla delivered in Q2. A forecast for 23,000 to 27,000 combined Model S and X deliveries during the period seems reasonable.
Of course, a downside or upside surprise is always possible.
With Tesla's third quarter coming to a close on Sunday, the automaker will likely report its third-quarter vehicle deliveries by no later than Wednesday of next week.