So... I am of the mind that if Tesla makes any Model 3's for customer deliveries in July or August, that's a major milestone. Success is solving the production issues so that they can hit the 5000/week at some point in 2017. From Musk's comments for a while now, they expect production problems to crop up. We really should not expect any production vehicles to be delivered in July or August. The real initial volume production is really later in the quarter, and even that, a few hundred would be great. It doesn't matter in the medium term if they put in insane effort to ship hundreds or thousands in Q3 if those efforts don't help get them to solve mass production bottlenecks.
Clearly, the bears will try to misconstrue Musk's comments to set too high of a bar in order to make failure almost certain from their perspective no matter what happens. While on balance, investors obviously now feel that zero to 2,500 in 2017 is too low, I remind you that many bears thought that Tesla would have filed for bankruptcy by now. Or 2019/2020 was the timeframe for the Model 3 and no way would they ship any in 2018, much less 2017.
Tesla ordered parts volume for initial production starting in July. They expect to be able to start production in July. But every part has to make it in properly in order to start volume production. Again, from Musk:
So, when we place parts orders with our suppliers, we’ve told them 1,000 a week in July, 2,000 a week in August, and 4,000 a week in September. These are parts orders. Then the parts need to arrive. They need to be turned into a car. And the car needs to be delivered to customers.
I think the best way to interpret this quote is... 1,000 a week initial parts order, plus another 2,000 a week in the next month, is for suppliers to understand that their initial production run sizing is for annual run rate of 100,000 a year. That the tooling and raw materials orders are targeted at that rate for July 1, but clearly there are likely to be some initial problems. These initial parts are due in July. If Tesla receives all the parts in order to build a car, they can start building cars. It is likely that they already have prototype parts on hand now... the initial low volume production runs of parts, indistinguishable from production parts if they don't make last minute engineering changes, to be able to build a few hundred or maybe even a thousand. Probably enough to crank the factory through some number of iterations in July to see where everything is and what doesn't work. It is possible that some parts will have to be revised... but note, ongoing revisions have been going on with all cars, so that's not abnormal.
At 100,000 a year initial run rate, that's a parts ordering volume greater than the Bolt by roughly 3-4x. That translates into a much lower fixed overhead cost per part. That commentary by Musk was not really for investors actually... it was to reinforce to suppliers that Tesla really does mean 100,000 and then 200,000 run rate very soon now. And the suppliers need to have the production capacity, raw materials, labor, and supply chains in place for those kinds of volumes.
We will see, at the end of this week, a peak at where the factory stands. I am expecting to see a lot of robots. But note, the factory doesn't need to be ready until July. And by being *not* ready in June, a slew of capex doesn't hit until Q4 at the earliest. Clearly Tesla is actually very tightly cash managed.
