Demand will undoubtedly exceed expectations for the Model 3 but will Tesla Motors Inc (NASDAQ:TSLA) be able to get enough cars off its production ramp in time?
Tesla Motors Inc’s (NASDAQ:TSLA) Model 3 launch looks to be one of the most exciting in history with analysts predicting more than a hundred thousand orders even before the end of the year and the launch of the Model 3. Considering the fact that Tesla, as a company, has only ever sold slightly upwards of a hundred thousand cars since its first roadster in 2008, the problem becomes visible. Tesla is trying to launch a mass market car but the question of whether it can ramp up production in time to meet orders by its launch date is dubious, considering its Model S and Model X backlog and the fact that Tesla has billions of dollars’ worth of orders on the first day alone.
The $35,000 car is the first mass market product by the world’s youngest automobile company. Over the past months, Tesla has assuaged analysts and investors by introducing improvements to its production line, injecting confidence in its ability to fulfil demand. The company has also made some smart decisions regarding the Model 3 such as the use of steel instead of aluminum which makes the car cheaper and easier to produce, all while cutting labor costs. However, the company still has a back log of orders for Model X and the older Model S cars, some going back as much as 3 years. The company succeeded in delivering 50,580 cars to customers in 2015 but with the Model 3 coming out in late 2017, the company will have to ramp up production for all 3 models substantially.
According to Tesla CEO Elon Musk however, everything is under control. Analyst expectations have been blown away with 180,000 orders coming in within the first 24 hours. That’s $7.5 billion worth of orders in a day. In the next 18 months, that number could be multiplied many times and while that is great news in terms of establishing demand, the company’s production line has become all the more important. Mr. Musk is not worried and promises 500,000 in annual sales by 2020. That’s ten times the current production ramp today.