Going into 2019, Tesla's (NASDAQ:TSLA) guidance for deliveries to increase 45% to 65% year over year in 2019 may have seemed unrealistic to some investors. After all, the automaker is up against a tough comparison. Vehicle deliveries soared 138% year over year in 2018. Furthermore, there were doubts at the beginning of the year about Tesla's ability to sustain Model 3 delivery volumes seen in the second half of 2018.
But Tesla has defied skeptics and is squarely on pace to deliver the 360,000 vehicles needed to hit the low end of the initial guidance range it laid out for the year.
Soaring Model 3 deliveries
Even for investors who were confident in Tesla's guidance for 360,000 to 400,000 deliveries in 2019, there was good reason for investors to doubt this target when the electric-car maker announced that its first-quarter deliveries slipped from 91,000 in the fourth quarter of 2018 to 63,000. Management said logistics challenges with the overseas expansion of its Model 3 were to blame.
But vehicle deliveries jumped to quarterly records in the next two quarters, led by rising sales of Tesla's Model 3. In Q2, Tesla delivered over 95,000 vehicles. Then quarterly deliveries rose to 97,000 in Q3. Record delivery volumes come even as Tesla's Model S and X deliveries have fallen sharply. That's because sales of Tesla's lowest-cost vehicle, the Model 3, have continued their sharp upward climb throughout 2019. Model 3 deliveries for the first three quarters of 2019 were about 51,000, 78,000, and 80,000, respectively.
With nearly 256,000 vehicles delivered so far this year, Tesla will need to deliver more than 104,000 total vehicles in Q4 to hit the low end of its guidance. And since production and deliveries have been steadily increasing as the year goes on, Tesla only needs to continue on the path it's on and avoid any major production setbacks.
Demand is rising
But what about demand? Even if Tesla can produce enough vehicles in Q4 to live up to its full-year guidance, will there be enough customer orders?
Based on what management said about order trends for its vehicles in Q3, demand should be sufficient.
"[W]e achieved record net orders in Q3 and are entering Q4 with an increase in our order backlog," Tesla said in its third-quarter update on vehicle production and deliveries. "As was also the case in Q2, nearly all of our Model 3 orders were received from customers who did not previously hold a reservation, solidifying the transition to generating strong organic demand."
The main focus in Q4, therefore, is "on increasing production to meet that demand."
With vehicle production consistently rising, it's no surprise management is optimistic. "We are highly confident in exceeding 360,000 deliveries this year," management said in its quarterly update on Oct. 23.