Tesla: 2020 Key Numbers

Summary

Production capacity should soar this year.

Will production-constrained narrative continue?

Street expects GAAP profitability.

In my most recent article on electric vehicle maker Tesla (TSLA), I provided some of my predictions for the company and its CEO this year. In the comments section, I received a lot of questions regarding my thoughts on the overall business, which I didn't want to make the focus of that particular article. Today, I wanted to look at the yearly numbers in more detail, because these are likely the key items that will continue to drive this stock.

First of all, you can't sell what you don't have, so let's examine the production angle. Tesla supporters have continued over time to push the narrative that the company's sales are limited by its production capacity. Back in October, management provided the following graphic to detail current production capacities around the globe.

1017993-15786692830778556_origin.png

(Source: Tesla Q3 2019 investor letter, seen here)

In my predictions article, I mentioned the possibility of a Model S/X production capacity cut this year. That was based off a couple of items, first of which was a big down year in sales of these two models in 2019. Moving forward, there is the potential for cannibalization of the Model X from the Model Y, and finally, competition is set to soar thanks to the Porsche Taycan, Mercedes EQC, and some others. Finally, tax incentive wind-downs will hurt, the most important of which I believe is the one from Tesla's home state of California because of its rebate limits. For this argument, let's assume that Tesla will produce about 70,000 units of its two luxury vehicles this year.

There have not been any mentions of the company cutting its Fremont Model 3 production capacity moving forward. This is a key part of management's goal to be producing over 10,000 Model 3 units a week by the middle of this year. Since the bull camp continues to believe the Model 3 is production constrained, Fremont should be running full steam for all of this year. However, let's be slightly conservative and assume some downtime for factory maintenance and perhaps some Model Y construction, and take about 2 weeks out. We'll assume roughly 335,000 units for 2020 here.

Let's move to Shanghai, which forms the basis for most of this year's production capacity increase. The factory is supposed to be at 3,000 units of Model 3 production by the end of June, so let's assume 25 weeks in the back half of the year at that rate. In the Q4 production and delivery release, management said the company has demonstrated a 3,000 unit per week run rate outside of battery pack production which started in late December. I would think it quite reasonable then to expect a 2,000 unit per week average for the first half of this year, and we'll again assume 25 weeks. Throw those two numbers together, and that's 125,000 for the full year.

The final piece of the puzzle then comes from the Model Y. To get an idea of what's going on here, let's go back to the Q3 2019 conference call and the following analyst question and the response:

Martin Viecha

Okay. Thank you. The next question is, with respect to Model Y, what is your latest expectations for launch timing? Do you anticipate any Model 3 production downtime at Fremont during the launch? And how should Model Y gross margin percent look compared to Model 3 gross margin?

Elon Musk

Well, we've talked about the launch time. What really matters is the timing to volume production where volume production is some number in excess of 1,000 units per week. And we're confident of reaching that point no later than the middle of 2020.

Given that statement, would it be reasonable to think Tesla could average 1,500 units per week in Q3 2020, and then ramp to say 2,500 units per week in the final quarter of the year? If we use 12.5 week quarters here, since there shouldn't be that much maintenance needed, that puts us at 50,000 units for the back half of the year. Since Elon Musk expects to be past 1,000 a week by the end of June, let's assume 5,000 units in total by the end of Q2, giving us a total of 55,000 Model Y units for the year. Thus, Tesla's total production for 2020 would be as follows, ignoring any limited production of the Tesla Semi right now:

  • Fremont S/X: 70,000 units.
  • Fremont 3: 335,000 units:
  • Shanghai 3: 125,000 units.
  • Fremont Y: 55,000 units.
  • Total 2020 production: 585,000 units.

I believe that this is a very reasonable projection, especially given the inclusion of some downtime for maintenance and other items. When Tesla reports its Q4 results in a couple of weeks, investors will be focusing on the forecast for both production and deliveries. Realistically, deliveries shouldn't be too far off, given Shanghai reduces transit times to China, and Model Y shouldn't be going to Europe in 2020. Even assuming a couple of weeks in-transit at the end of the year, it would seem reasonable to expect around 570,000 deliveries for 2020.

Now, I don't think the street currently expects an increase of about 200,000 vehicles year over year. Revenues are currently forecast to rise by less than 25%, and that includes Tesla Energy which is supposed to soar. I do expect Model 3 average selling prices will decline a little, but Model Y ASPs will help. The company will also have some full self-driving revenues to put on the books, and credit sales are expected to rise thanks to the Fiat deal. To put things in perspective, a 30% rise in unit sales would be about 477,750 units, so either the average street revenue estimate is way too low, or my delivery expectations are very high. Splitting the difference would be around 525,000 units for 2020.

I should provide one caveat to this situation. There is the possibility that Tesla management will be tight-lipped about its yearly forecast in the coming weeks. It's possible the company could go quarter to quarter for now, given the potential uncertainty surrounding the Shanghai ramp and Model Y production start. We've seen recently a change in regards to how guidance is presented, and it's fully possible that we don't see a full year number given just yet. We might just see a statement that talks about increasing production capacity by a significant amount, with no quarterly numbers given even.

In the end, however, where are implied expectations from investors? With the stock having soared as seen below, to a nearly 0 billion market cap, I would think Tesla needs to be closer to my demand number if this rally is to hold after the Q4 report. What do you expect Tesla to announce for this year's production and deliveries when it reports in a few weeks? I look forward to your comments below.

1017993-15791114589243813.png

(Source: Yahoo Finance)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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