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In 10 Months, Tesla Could Prove Its Critics Wrong About The Model 3 - Here's The Math

Apr. 13, 2018 1:37 PM ETTesla, Inc. (TSLA)488 Comments
Yarrow Bouchard profile picture
Yarrow Bouchard


  • In ten months, Tesla will report Q4 2018 earnings. That could be the decisive moment for the Model 3 debate.
  • Bloomberg’s model suggests that critics are wrong to think that Tesla can’t scale production.
  • I did the math on gross margin and found that Tesla only needs to match the U.S. industry average on the Model 3’s hardware to hit its 25% gross margin.
  • By changing two overly conservative assumptions in a bearish UBS model, I found that the Model 3 can achieve a BMW-level EBIT margin.

Bloomberg runs a model that tracks Model 3 production, using a combination of registered VINs and VINs of delivered vehicles. According to the model, Tesla (NASDAQ:TSLA) is currently producing 2,395 Model 3s per week. What’s more, the trend data indicates a surge to well above 3,000 per week before the month is out.

Production rate

For now, Bloomberg’s model provides evidence that the Model 3 ramp at the end of Q1 is sustainable, not a temporary burst as some critics had speculated. That forecasted 3,000+ per week rate would be a sudden increase from the Q1 exit rate of 2,020 Model 3s per week. If Tesla can raise the weekly production rate by 1,000 per month in April, then in May, then again in June, that gets the company to its goal of 5,000 Model 3s per week by the end of Q2.

Six months of delays left some fans disheartened and some critics emboldened. What I continue to think is that Tesla’s ambitious future is not cancelled, simply delayed. And now it looks like the delay might soon be over.

Two Model 3s charging at the University of Dayton in Ohio. Photo by DatTr0waway.

Gross margin

While some critics argue that a ramp to 5,000 Model 3s per week is not realistic, others are agnostic on that point. Their contention is that the Model 3 cannot be profitably sold at its advertised price points. Some critics are even eager for Tesla to ramp production, so it can start losing money faster. Well, we should find out in about ten months if that’s going to happen.

If the ramp proceeds as described above, I think the decisive moment could come when Q4 2018 earnings are reported. (If Q4 2017 is a guide, that should be in February 2019.) My reasoning: if the 5,000/week rate is

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.

Analyst’s 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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