Electric-car maker Tesla Motors' (NASDAQ:TSLA) has already announced third-quarter deliveries, and now the focus is turning to the company's fourth quarter. While it's clear that Tesla is expecting a huge jump in Model S sales, one great mystery remains: How many of its just-launched Model X SUVs could the company deliver during the quarter?
Even on the day of Tesla's Model X launch, which occurred only a few days before Q4 began, Tesla CEO Elon Musk was still uncertain about how fourth-quarter deliveries of its Model X SUV would pan out.
"The thing that's very difficult to predict is that because it's an S curve with production, depending upon exactly where the dates fit over that S curve affects the total amount produced in one quarter by a lot," Musk said during a Q&A with press a few hours before the Model X event on September 29. "Sort of like where we are right now -- sort of like five cars a week -- and you end up at the end of the year with maybe, like, 800 cars a week, or something like that; the final weeks make an enormous difference."
Musk seemed to suggest that the uncertainties in ramping production are mostly related to supplier capability, not Tesla's new production line for the vehicle.
And there are a whole bunch of external dependencies. So, if you can tell me which suppliers are going to deliver according to what they say, I can tell you how many cars we will make. But, you know, the car will move as fast as the unluckiest supplier. That's basically what happens.
Musk admitted that initial production has been "extremely difficult."
"Ninety percent [of the parts] are fine, 9% are difficult, and 1% are excruciating," Musk explained during the Q&A. Some of the more difficult parts to source for initial production have been parts for the second-row seats "because we were so extreme with the second-row seat safety, the expansive windshield glass, the sun visors (which feature a telescoping magnetic connector to operate properly in the middle of the oversized windshield)."
"When you have several thousand unique parts, it's the slowest part that defines the progress of the car," Musk said, summing up the challenges.
The timing of Tesla's uncertainty about quarterly deliveries doesn't bode well for the company's huge expectations for the fourth quarter. In order for Tesla to achieve the low-end of its full-year guidance range of 50,000 to 55,000 total deliveries, it will need to deliver about 17,000 vehicles in Q4. This number is up significantly from Tesla's third-quarter deliveries of 11,580 vehicles, which was a record for the company.
Delivering 17,000 vehicles during Q4 could be a challenge for Tesla. With the company admitting it was only producing five of the Model X a week headed into its fourth quarter, and in light of the production challenges Musk mentioned related to sourcing parts from suppliers, Model X deliveries during Q4 could easily be less than 1,000. And if Model X deliveries for the fourth quarter are this weak, Tesla's ability to achieve full-year guidance will be highly dependent on Model S sales during the quarter.
For example, if Model X deliveries during Q4 are less than 1,000, the company would need to deliver more than 16,000 of the Model S. This would represent a 38% sequential jump in deliveries for the sedan.
In Q4, vehicle production will make or break Tesla's performance. Fortunately for Tesla, Musk recently noted that the Model X launch actually gave a big boost to Model S orders.
It doesn't look like demand will be an issue for the sedan; Model S deliveries during Q4 will simply be a reflection of Tesla's ability to ramp production. And Tesla's Model X deliveries, too, are also entirely dependent on supply, because the company says it has about 25,000 reservations for its Model X SUV.