Tesla: How High Could Model 3 Demand Go?

Oct. 19, 2017 11:36 AM ETTesla, Inc. (TSLA)F, TM314 Comments
Yarrow Bouchard profile picture
Yarrow Bouchard


  • Is there demand for 500,000 Model 3s per year? No, probably more like 1.1 million. And that's conservative.
  • The Model Y should bump up Tesla’s total demand to 2.3 million cars per year.
  • Rapidly scaling manufacturing will make Tesla essentially unstoppable. The big question: can Tesla do it?

Introduction: the big picture

Tesla (NASDAQ:TSLA) is an okay manufacturing company and a great software company. Its competitors are great manufacturing companies and terrible software companies. With the advent of fully self-driving cars seemingly just on the horizon, car companies will need to be both great electric car manufacturing companies and great software companies. This is what makes Tesla so interesting to me and one reason why the Model 3 production ramp is such an important test for the company.

If Tesla can get as good at manufacturing as its peers and rapidly scale up to a volume of millions of cars per year, the main threat to Tesla (as I see it) is obviated. Tesla is in a somewhat precarious position today in that its still small scale means competitors could have access to vastly more driving data if they chose to equip their vehicles with the requisite sensors. If Tesla scales up to the size of a top ten car company, this incumbent advantage shrinks from access to potentially 100x as much data to just 3x as much data.

For more details on what this diagram means and why it’s important, see my article Self-Driving: The Companies That Will Win (And Lose).

If Tesla can use its software expertise to build a fully automated car manufacturing facility, as CEO Elon Musk has envisioned, then Tesla will likely exceed its peers in both manufacturing and software. Last we heard, Tesla will not attempt to fully automate manufacturing until after production of the upcoming Model Y compact crossover. Success in this endeavour is not necessary for Tesla to grow, compete, and profit enough to delight investors. It would just be icing on the cake.

Model 3 demand: how high could it go?

For now, all eyes are on the Model 3. Tesla

This article was written by

Yarrow Bouchard profile picture
I write about autonomous vehicles and other AI robots on Seeking Alpha and in my Substack newsletter. I've been long TSLA since February 2017.

Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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