New Tesla Model 3 Delivery Question

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A message from the Program on Vehicle and Mobility Innovation at Wharton’s Mack Institute

The Mack Institute and its Program on Vehicle and Mobility Innovation have worked with GJ to add a new question to the Vehicle Innovations Challenge that will allow for more fine-grained predictions of what will happen to Model 3 deliveries.

Forecasters on the pre-existing question about total deliveries of the Tesla Model 3 by July 1, 2018 have increasingly converged on a 90% prediction that the outcome will be in the lowest bin of the choice set, less than 50,000 vehicles. The 90% forecast is unchanged since March 5th, although this also reflects reduced forecasting activity based on a greater sense of certainty about this outcome. Forecasters are relying on the ample news about production delays, and also on the special attention given to generating independent data on Model 3 output. For example, in February, Bloomberg News launched a Model 3 tracker whose estimation model relies on Vehicle Identification Numbers (VINs) submitted by Tesla to U.S. safety regulators as well as on those reported by owners directly to Bloomberg. While weekly data can vary considerably, Bloomberg claims that its standard model is built to resist sudden swings in the data and instead attempts to identify a sustainable production rate.

50,000 is a much lower number than was originally forecast by Tesla. While being late to reach goals is common in Tesla’s history, observers are putting more weight on the rate of Model 3 production and delivery for several reasons.

First, Model 3 is the mass market car that founder Elon Musk always described as the ultimate goal for his new company. Over 400,000 people put down a deposit of $1000 after Model 3 was announced in September 2015. Being able to scale up production of a mass market model, both to satisfy those on the waiting list and to attract new demand, is viewed as an important milestone in Tesla’s attempt to be a profitable and effective automaker – the first new automaker in the US since Kaiser-Frazer (purchaser of Jeep design/brand after WWII, which eventually became part of Fiat Chrysler) in 1945. Second, scaling up production, and therefore deliveries, would generate the high revenues and profits that have been elusive so far during Tesla’s brief history. Third, meeting production targets would be a tangible sign of progress to help Tesla secure the backing of its supporters and the silence its skeptics. Failure to meet long-announced and frequently-revised Model 3 production and delivery targets is increasingly described by critics, including investment analysts, as a reason to doubt Tesla’s long-term viability.

Even taking under account the recent production halt, available data shows an increase in production over the last few weeks as Tesla shifted workers from the Model S and Model X factory lines to bolster end-of-quarter Model 3 numbers, among other changes (i.e. CNN). This push at quarter’s end is characteristic of Tesla in the past but, specifically, Bloomberg’s Tracker Model does not regard it as sustainable. Workers will need to return to the Model S and X assembly lines at some point, and if overtime hours are being worked, which adds to total manufacturing cost. The uncertainty about what Tesla will be able to achieve vis-à-vis delivery levels of the Model 3 can be characterized as high.

We look forward to seeing what information GJ forecasters draw upon – and their estimation methods – in predicting the specific Model 3 delivery volume achieved until the end of Q2 2018 and what that means for Tesla’s future.

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