Tesla (TSLA -5.59%) said today that it met its third-quarter production goal for its high-volume Model 3 sedan as it produced more vehicles in the quarter than ever before. But it faced challenges in getting those vehicles delivered to customers, and said that new tariffs had complicated its efforts to expand into China.
How Tesla performed: Third-quarter production and deliveries
Tesla said that it manufactured 80,142 vehicles in the third quarter, by far its most productive quarter ever. Of those, 53,239 were the Model 3, in line with the range of 50,000 to 55,000 that CEO Elon Musk forecast during the company's second-quarter earnings call on Aug. 1. (The remaining 26,903 were Model S or Model X vehicles, but Tesla didn't disclose the mix.)
Tesla focused on production of highly optioned Model 3s during the quarter, including high-performance and "dual motor" all-wheel-drive variants. Image source: Tesla Inc.
Not all of those vehicles were delivered to customers, however. Tesla said that it delivered 83,500 vehicles to customers in the third quarter, including 55,840 Model 3s -- but that total apparently included roughly 15,000 vehicles that were "in transit" as of the end of the second quarter. The company said that a total of 11,824 vehicles, 8,048 of which were Model 3s, were in transit as of Sept. 30.
Of note, Tesla said that the mix of Model 3s it produced during the quarter was a rich one, with higher-priced "dual motor" versions making up nearly all of the production by the last few weeks of September. In theory at least, that should bode well for the company's third-quarter margins.
Tesla's deliveries in the third quarter were more than three times its year-ago total. Much of the year-over-year increase was due to the Model 3, of course, but deliveries of both the Model X and Model S were also up incrementally year over year.
| Vehicle | Q3 2018 deliveries | Q3 2017 deliveries | Change |
|---|---|---|---|
| Model S | 14,470 | 14,065 | 2.9% |
| Model X | 13,190 | 11,865 | 11.2% |
| Model 3 | 55,840 | 220 | - |
Data source: Tesla Inc.
The U.S-China trade war is raising costs
Tesla noted that sales of the Model S and Model X were both up year over year despite new tariffs that put it at a significant cost disadvantage in China. Teslas exported to China now face a 40% tariff, one of many tariffs that the Chinese government has rolled out in response to new U.S. tariffs imposed by the Trump Administration.
In addition, Chinese buyers of imported Teslas aren't eligible for the government incentives available to customers who buy domestically produced electric vehicles. Add in the costs of shipping cars across the Pacific, and Tesla says that it is operating at a 55% to 60% cost disadvantage in the world's largest new-vehicle market.
Tesla has made some progress toward securing a site for and permission to build a factory in Shanghai. It's not clear exactly where that effort stands, but Tesla said on Tuesday that it is accelerating construction of that factory in Shanghai, which it said will incorporate "many lessons learned from the Model 3 ramp in North America." (It's still not clear how Tesla plans to finance that factory's construction.)
Logistics remain a challenge for Tesla
While its Model 3 production line is finally up to speed, more or less, Tesla admits that it still has work to do on logistics. Through September, Tesla had seemed overwhelmed by the challenge of delivering all of the vehicles it made during the quarter. It ultimately enlisted employees and volunteers to help with several marathon days of deliveries, aiming to get as many vehicles as possible delivered before the quarter ended on Sunday night.
Tesla said that it plans to make further improvements to its shipping and delivery processes in the weeks to come. Those improvements will include an expansion of its recent effort to deliver vehicles directly to customers, at their homes or offices, rather than at a Tesla store or delivery facility.
In its seventh year of production, Tesla's Model S is still finding plenty of buyers. Deliveries rose 2.9% in the third quarter. Image source: Tesla Inc.
An interesting omission: No guidance
Breaking with past practice, Tesla did not give any guidance in its third-quarter deliveries report, nor did it update the total number of Model 3 reservations that remain to be filled. It's likely that the company has decided to be careful about its promises in the wake of its settlement with the Securities and Exchange Commission this past weekend.
The upshot: For once, an unexciting report
By Tesla's standards, this report was pretty mundane -- and given that this is Tesla, that's noteworthy. The company met, but didn't exceed, the expectations it had previously set. There were no surprises.
Tesla has faced a lot of hard questions recently, and it's sure to face more when it presents its third-quarter earnings report in a few weeks. But this quarter's production report was as close to "business as usual" as this turbulent company gets.
