Missing Delivery Estimates by Half, Tesla Model 3 Has an Uncertain Fate

One-third of the quarter’s S3 were made in the last seven days. Bill Pugliano/Getty Images

Tesla delivered a total of 29,870 cars in the fourth quarter of 2017, including Model S, Model X and the new Model 3, the company announced on Wednesday. 

Tesla’s official release focused on the bright side of Model S and Model X sales: combined delivery of these two models reached 28,320 units, a 27 percent growth over 2016 and an all-time high.

In contrast, production and delivery for Model 3 fell far below estimates. In the quarter ending December 31, Tesla produced 2,425 units of Model 3 and delivered 1,550. Prior to the release, the average estimate for Model 3 deliveries was 2,900, according to Bloomberg’s survey of nine widely-varied industry forecasts. 

Investors and industry observers have been closely watching the manufacturing capacity of Tesla’s Model 3. Whether the model can be made in mass production will determine Tesla’s ability to enter the mainstream auto market—a goal set by CEO Elon Musk.

The company said that the production rate for Model 3 had improved significantly in the last few days of 2017; one-third of the quarter’s units were manufactured in the last seven days in December. Of the last batch, 860 units were in transit to customers at the end of the fourth quarter and would be counted toward 2018 sales. 

Tesla originally planned to produce 5,000 units of S3 per week. Now, it has revised the goal to 2,500 weekly units by the end of the first quarter in 2018, and to reach 5,000 per week by the second quarter. 

Even with mass production, Tesla will face other challenges in the highly-saturated mainstream auto market. The New York Times reported on Wednesday that domestic sales of new vehicles declined 1.8 percent in 2017, the first downturn in seven years.

An analyst from auto e-commerce site Edmunds.com told the Times that, on average, every licensed driver now owns 1.26 cars on the road, the highest ratio in history.

Rising loan interest rates and fuel prices can also contribute to a decline in new vehicle demand. 

Missing Delivery Estimates by Half, Tesla Model 3 Has an Uncertain Fate