Before I go any further, I want to reiterate what I said in my previous article about Tesla, simply, “Let’s All Calm Down.”
There are already a bunch of articles out there about how this is either great or terrible. You can read into it as demand is down. You can read into it that Tesla is trying their best to get a cheaper Model 3 to their customers. The fact is we really don’t know.
I’m not going to pretend I know, but I always argue the best spot to try to figure out what a business is doing is through their public words. Here’s what I feel relates:
- …we […] ultimately produced more dual motor than rear wheel drive cars in Q3. In the last week of the quarter, we produced over 5,300 Model 3 vehicles, almost all of which were dual motor, meaning that we achieved a production rate of more than 10,000 drive units per week. [Source]
- Output of the more mass-market vehicle, a key plank in CEO Elon Musk’s plan to become profitable, is on track and an 8,000 a week production rate is “well within reach,” despite extra spending demands, Evercore ISI analysts George Galliers and Arndt Ellinghorst wrote Thursday in a note. Their report came after a site visit at the company’s Fremont, California, plant this week. [Source]
- Panasonic automotive executive Yoshio Ito told Bloomberg that “the bottleneck for Model 3 production has been our batteries.” [Source]
What Does It Mean?
Before I speculate, a cautionary word — I know nothing. This is an attempt at a logical argument using these three data points and nothing more. Here goes:
If Fremont is “well within reach” of 8,000 cars a week, and battery production is the bottleneck, until Panasonic can boost battery production, the only way to produce more cars is to reduce the battery size of those vehicles.
If we assume the Mid Range car battery is 80% the size of the Long Range car battery, this would allow Tesla to produce an additional 20% of cars for the quarter.
Why Not Short Range?
The argument could be made that Tesla should be delivering the Short Range battery pack now. After all, the battery pack for it is about 66% the size of the Long Range, so they could produce 50% more cars, right?
Logically, increasing production by 20% would be significantly easier and cheaper than 50%. And delivering 20% more cars would be significantly easier to scale to than delivering 50% more cars.
Additionally, this allows a higher profit margin on those cars. If the battery packs at the cell level are near $100 per kWh, as Elon Musk stated at the annual shareholder meeting on June 5th he expected they would be this year, the additional $5,000 creates a solid margin.
Finally, a Mid Range car theoretically incrementally increases demand, so not all the Day #1 and Day #2 reservation holders jump in at the same time, potentially creating a less chaotic and frustrating end-of-year delivery situation.
What About Demand?
The only information we have about demand from Tesla is that they have been producing nearly all AWD cars recently, which implies the RWD variant of the car has been less popular. The bullish argument would be Tesla is trying to do right by the early reservation holders and get them their cars as soon as possible (based on how AWD cars were delivered, I expect those with reservations will get bumped up the line).
The bearish argument is Tesla doesn’t feel there is enough AWD demand to justify full-scale production until the end of the year.
I feel the truth is somewhere in the middle of those two.
It’s impossible to break down all the implications of this without insider knowledge. Any articles definitively stating they know are actually guesses, no matter how compelling the argument. I expect we won’t really know much more until the Q3 earnings call.
Until then, if the Mid Range version makes you want to order a Model 3, awesome! If you’re still holding out for the base model, it looks like it may be a few more months.
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