i've addressed reservations once or twice in the q1 earnings thread. but now that i'm convinced q1 earnings are going to be quite good, my focus shifts to the future. how will tesla do the rest of the year? the shorts seem to be quite keen on the reservations issue. they cite high cancellation rates and quick turnaround times as reasons why the tesla reservations book has dwindled. i've been working on a reservations model, trying to take into account the various facts we know about reservations. the cancellation rate is a slippery concept and it could be measured a number of different ways. the simplest is to take the number of cancellations and divide by the start-of-quarter reservation count. that misses some of the cancellations that would happen with people within the quarter. so i use a cancellation rate formula that incorporates the reservations from the current quarter. you can easily rework these numbers yourself using a simple spreadsheet. basic formulas quarter end reservations = start of quarter reservations + new reservations - sold vehicles - cancelled reservations cancellation rate = cancelled reservations / (start of quarter reservations + new reservations - sold vehicles) known facts 1. using the reservation numbers reported by users, it looks like q1 reservations in the eu were about 900. 2. reservations sequence numbers no longer exist in the us. using the last available data points, then extrapolating out the reservations rate gets you around 2500 q1 reservations in the us. i didn't add in canada because it seems small. 3. using the above and 100 reservations for the rest of the world (row) i arrive at 3500 reservations total for q1. 4. at the end of q4, "about 25% of the  reservations were from outside north america". 5. cancellation rates are expected to remain elevated this quarter. 6. the tesla website has delivery times for north american customers in the range of 1-3 months, depending on the configuration. elon musk has said the average wait time in north america is down to two months. 7. unit sales this quarter will be 4750+. 8. eu production will start around june. i have to make a few assumptions. in my initial attempt, i want to be conservative. i want to think like my opponents, the shorts. some of these assumptions might seem silly, but i can always make them more tesla-favorable later. i think i've taken every element of the model at made it go against tesla: cancellation rate skyrocketing, reservations stalling, and production climbing. assumptions 1. cancellation rate will jump 100% above the 2012 q4 rate and then stay high the rest of the year. 2. reservations increase to around 4,000 per quarter, but tesla can't do any better than that the rest of the year. 3. production stretches over 5,000 per quarter, consuming reservations at a faster pace. even with these horrible assumptions, the reservations model shows that we are clearly sold out through 2013, ending the year with around 2,500 reservations. numbers in bold italic are the estimates. prior count+ new- sold- cancel= end countcancel rate2012Q3115002900250950132008.3%2012Q4132006000240018001500010.7%2013Q1150003500495029001065021.4%2013Q210650400052002000745021.2%2013Q37450400054001300475021.5%2013Q4475040005600700245022.2%so how can usa production times average 2 months when there are supposedly 10,500+ reservations on the books? in order to make sure the model is logically consistent, i actually had to break out the north american and eu/rest of the world end-of-quarter reservations and track how they evolve. n.a. qtr end reservationseu/row q end reservationstotal qtr end reservationsna productioneu/row productiontotal production2012Q4 11,600 3,400 15,000 2,400 - 2,4002013Q1 6,270 4,380 10,650 4,950 - 4,9502013Q2 4,030 3,420 7,450 3,640 1,560 5,2002013Q3 3,400 1,350 4,750 2,700 2,700 5,4002013Q4 1,395 1,055 2,450 4,200 1,400 5,600the first thing to check is internal consistency. you'll see the total reservations and total production line up exactly in both tables. the next thing to check is logical consistency. you can see at the end of 2012 q4 there are 3400/15000 = 22.7% reservations outside north america. the production for 2013 q1 is entirely north america, and then europe gets added to the mix for a few weeks in q2 and more earnestly in q3. total production is kept near or above 5000 for all of 2013. so far, it's all consistent with the stated facts. but how about the 2 month average wait time in north america? currently the model shows 6,270 north american reservations at the end of 2013 q1. since i am using a jump to a 20+% cancellation rate this is effectively only about 4,925 reservations. of those 4,925 i'd guess there are a bunch of deferrals, maybe 1,000 or so? that means only about 3,925 units of the remaining 6,270 north american reservations will be in queue for production. with production at 500 per week, that works out to around 8 weeks of production. so yes, it looks like this model is consistent with the 2 month average wait time for north american customers. and no, the model shows that the shortened wait time isn't a major problem. as long as new demand generation keeps chugging along even barely above the q1 level, everything will be just fine because europe/row production will fill in the holes for a couple quarters. by the time we reach the 4th quarter, there will still be about 2500 reservations left even under these adverse assumptions. hopefully by then the tesla demand generation machine has reservations pushing well over 5,000 a quarter. on the next earnings call i would expect to hear: 1. ended quarter with something more than 10,500 reservations with about 60% in the usa. 2. tesla affirming forecast of over 20,000 units during 2013 based on the existing reservations and pace of reservations. 3. european deliveries starting soon. 4. focus on demand generation, especially for 2014. 5. projecting q2 production of 5000 or more units. i've just presented one approach for trying to reconcile all the information on reservations and production. hopefully someone else has some insights or thoughts regarding the latest decline in wait times? later i'll try to update with some more realistic numbers for the rest of the year. recent trends in european reservations indicate some pickup after a seasonally slow q1. in conclusion, i agree with elon. "tesla doesn't have a demand problem."