Tesla aims to produce 600,000 to 650,000 vehicles in 2020, with around 500,000 of those being the Tesla Model 3. The current premium segment leader, the Mercedes C-Class, sold 478,000 in 2018, but — being a fossil burner — is now in terminal decline. The BMW 3 Series only managed 366,000 sales in 2018 and won’t grow significantly. The result? The Model 3 will almost certainly take the global #1 spot in 2020. Let’s break down the numbers.
Tesla has guided for 500,000 vehicle deliveries in the 12 months spanning Q3 2019 and Q2 2020. Given that H1 2019 deliveries amounted to 158,375 vehicles, and 2019 full year guidance remains at 360,000–400,000, this points to a further 200,000 to 240,000 deliveries for H2 2019. In turn, given the aforementioned 500,000 figure, this indicates a H1 2020 delivery guidance of 260,000 to 300,000 vehicles. From all of these figures, we can derive Tesla’s planned delivery volumes over the coming 12 months, and also extrapolate out likely figures (and deliberately conservative figures) for H2 2020:
In the graph, I’ve assumed that 2019 reaches ~380,000 total deliveries, the midpoint of the long-standing guidance. The 2019 H2 and 2020 H1 combined total assumes a conservative ~482,000 (rather than the aimed 500,000).
The 2020 H2 figures for Model 3 just assume a continuing steady ramp, with most of the growth coming from Gigafactory 3 in Shanghai. This is based on the assumption that Fremont’s Model 3 output will indeed achieve the planned, steady, 7,000 per week target towards the end of 2019, and increase marginally from there (2019 Q2 production averaged ~5,600 per week). This will mean 375,000 Fremont Model 3s in 2020 (up from around 300,000 in 2019). Then add to this a total of almost 135,000 Shanghai Model 3s in 2020, giving just under 510,000 Model 3s globally in 2020. Even if the Shanghai ramp is much slower than anticipated, only reaching a steady 3,000 units a week by the end of H1 2020 (deeply conservative), Shanghai’s total 2020 Model 3 output will still be on the order of 100,000+ units. This would still give a 2020 global total of 475,000 Model 3s.
I’ve also assumed Model S and Model X remain unspectacular, with just around 75,000 combined annual sales from here on out. Now that the hype around a major refresh has been clarified (Tesla instead makes continuous, gradual, improvement of existing models), the S and X may return closer to historic levels. But Tesla is not counting on that happening.
Finally, I assume Tesla Model Y production starts, as guided, at the end of September 2020 (“Fall 2020”), with deliveries starting to appear in early Q4. The Q4 2020 Model Y volume in the chart assumes a conservative 12,500 units, which is still around 4× the volume that Model 3 deliveries achieved across both Q3 and Q4 2017. The production ramp of Model Y may proceed slightly faster than this conservative figure, but likely won’t exceed 20,000 units in those initial 3 months, since Tesla will want to get some feedback on potential issues and niggles from the very early adopters (employees and California-based superfans) before scaling volumes dramatically. Model Y should, however, ramp very rapidly through H1 2021.
In sum, the chart assumes 2020 total global vehicle deliveries — S, 3, X, and Y — of 600,000 units (a conservative estimate). The 2020 total could be as high at 650,000 or even 700,000, but for the sake of the current thesis around Model 3 becoming the global best seller of the premium segment in 2020, the 600,000 figure — including 475,000 to 510,000 Model 3s — already achieves the landmark result.
Mercedes C-Class and BMW 3-Series Volumes
Jato and CarSalesBase record the 2018 premium segment global best seller as the Mercedes C-Class (all variants), with 460,000 units. Mercedes’ 2018 annual report records a higher figure of 478,000 sales. However, even by Mercedes’s own reckoning, this is down from a peak of 492,000 in 2017. The current C-Class architecture dates from 2014, and Mercedes has typically refreshed the model every 7 years (suggesting ~2021 for the next version).
Likewise, the BMW 3 Series sold 366,000 units globally in 2018, steadily declining year over year from the most recent peak of 500,000 in 2013. Although there is now a refreshed version rolling out (from March 2019), historically, it is typically 2 to 3 years into the refresh that sees sales of the 3 Series peak. Even if we are generous and assume the 3 Series’ volume climbs back up a little, post-refresh (see graph below), the C-Class will still likely remain the fossil leader. The 3 Series’ all-time high point was way back in 2003 (~560,000 sold).
The Audi A4 brings up the rear with 345,000 units in 2018, but is on a (modest) growth trend recently, unlike the other German fossil burners. Note that for all of these premium brands, their top selling individual models are still sedans, though their SUV models are gradually taking over.
More crucially, the US market shows that the Tesla Model 3 is stealing significant market share from the German brands’ top sellers, and is already well in advance of their volumes. In the recent 2019 Q2 investor call, Elon Musk even stated that the Model 3 outsells all premium sedan competitors “combined” in the US — although, this may depend on how you define the competitors. The same pattern of stealing sales will no doubt also occur in Europe and China as the Model 3’s availability increases in those markets and buyers defer purchases of fossil cars whilst waiting for their car-of-the-future (see Osborne Effect). This is especially likely in the China market, where Tesla is perceived as the technology leader, sans pareil, and significantly outcompetes both the Mercedes and BMW on sticker price.
In short, Tesla will almost certainly sell at least 475,000 Model 3s globally in 2020, and perhaps as many as 510,000 (even by fairly conservative estimates). Meanwhile, the highest volume fossil — the Mercedes C-Class — will almost certainly sell well under 470,000, perhaps even substantially below 450,000. Let’s compare these figures on a graph:
Note that I’ve used what are likely the most favourable figures for the fossil incumbents in the graph — and the least favourable for the Tesla — and the Model 3 is still set to take the top spot. The fossils may in fact fall off more dramatically than indicated here, as the EV revolution takes hold of public consciousness, and the Model 3 may well climb above 500,000.
For doubters, remember that Tesla has achieved 70% annual growth in deliveries between 2015 (50,500) and 2018 (239,000). 2019 guidance is for approximately 60% year-over-year growth. I’ve walked through my rationale for the 2020 figures above, and am only assuming a 58% growth from 2019 average guidance. This seems like a pretty safe (and, just to be clear, deliberately conservative) forecast. With Shanghai Gigafactory making unambiguous progress, Tesla having recently confirmed that cell supply is in place for Shanghai’s planned 2020 volumes, and a cash balance on hand of $5 billion, Tesla could move many more vehicles in 2020.
Do you agree with my assessment that the Model 3 will likely take the global #1 premium vehicle position in 2020? Please share your considered thoughts in the comments.