Tesla made 53,239 Model 3s in the third quarter of 2018, which is nearly twice as many as it produced in the previous quarter, the company announced on Tuesday. The automaker delivered 55,840 Model 3s and 83,500 cars in total (including the Models X and S). That means Tesla sold, in one quarter, “more than 80 percent” as many cars as it did in all of 2017, the company said.
Those production and delivery numbers are right in line with what the company had previously estimated. (Tesla said that it expected to make 50,000 to 55,000 Model 3 vehicles in Q3 and predicted that “deliveries should outpace production.”) It also shows that Tesla was able to increase its pace of Model 3 output despite being mired in the drama surrounding Elon Musk’s abandoned attempt to take the company private, which resulted in charges of securities fraud from the SEC, a quick settlement, and his stepping down as chairman.
The average production of Model 3s per week — the yardstick Musk has used to describe the health of the company’s production efforts — for the quarter was a little over 4,000. That’s still short of the 6,000 per week he targeted earlier this year, but it’s high enough for the company to consider production “stabilized,” according to the release.
The Model 3 is the key to Tesla’s goal of profitability, but with such a dramatic increase in the numbers, the company has spent the last few weeks in what Musk dubbed “delivery logistics hell.” Some cars have piled up in parking lots around the country, and customers have been waiting for hours in long lines for their new vehicles.
Tesla even turned to its loyal fan base for help, enlisting volunteers to help push as many Model 3s out the door by the end of the quarter as possible. It offered discounts and incentives to entice buyers, and it allowed customers with existing Model S and X leases to end their agreements early if they nabbed a new car before the quarter was out.
“Today’s production announcement offers a bit of redemption to the Tesla faithful,” said Jeremy Acevedo, manager of industry analysis at Edmunds. “It’s refreshing to see the company making headlines for producing cars, not controversies. Between the makeshift tent, extra shifts and Elon’s all-nighters at the factory, it hasn’t exactly been a traditional path getting here, but make no mistake that producing 50,000 Model 3s in Q3 is significant milestone.”
Acevedo said the real question is whether Tesla could sustain this pace of production, particularly in light of the delivery challenges. “While Tesla superfans and owners have generously volunteered their time to assist, this isn’t necessarily a sustainable model that Elon can count on moving forward,” he said.
Exactly how much this effort affected the company’s bottom line won’t be clear for a few weeks, as Tesla isn’t scheduled to report its earnings for the quarter until the beginning of November. (Musk said in a company email over the weekend that Tesla was “very close to achieving profitability,” and he’s promised the company will maintain a profit going forward.) Whatever the financial numbers end up looking like, it’s clear that scaling the pace of deliveries with increased production will be an important task for the company going forward.
“[D]elivery and outbound vehicle logistics were our main challenges during Q3,” the company wrote. The exact reason for the delivery backlog wasn’t made clear. Musk recently claimed on Twitter that a shortage of delivery haulers could be to blame, and he even suggested that Tesla would build its own — though industry representatives have disputed this.
Others outside the company have suggested that Tesla’s insistence on developing its own internal resource management software left it ill-prepared to handle its current pace. Either way, Tesla claimed relief is on the way. “We made many improvements to these processes throughout the quarter, and plan to make further improvements in Q4 so that we can scale successfully,” the company said.
Tesla also said it’s “accelerating construction” of its planned Gigafactory in Shanghai, China, because of President Trump’s ongoing trade war. Announced in July, Musk previously estimated that the Gigafactory there would need a few years to be built out enough to begin production. Tesla says that the 40 percent import tariff applied to the cost of every one of its cars in China, combined with their ineligibility for government incentives, as well as the overall cost of shipping, means the company is at a “55 to 60 percent cost disadvantage.” Localizing production in China is a potential, if not immediate, way around all this.
The company also has long-term plans to build a new Gigafactory in Europe. But its short-term financial outlook remains a concern for some investors. Musk has been adamant that Tesla won’t need to raise more money by the end of the year and that turning a profit on the Model 3 will be enough to help buffer against the company’s diminishing cash supply, which was down to $2.2 billion last quarter from $3.4 billion at the start of the year.