Cars and Drivers

Can Tesla Deliver 35,000 Cars This Year?

Lost in the news about Tesla Motors Inc. (NASDAQ: TSLA) building a gigafactory in Nevada, and the Nevada legislature’s approval of $1.25 billion in tax abatements, is the question of whether the electric car company can meet its most important goal of 2014, which is the delivery of 35,000 vehicles. The number is part of the forecast Tesla has given to Wall Street.

Tesla management has already stated that it has a supply problem. In its second-quarter earnings release, management wrote:

This quarter, for example, we delivered 7,579 Model S vehicles, slightly ahead of guidance and up by more than 17% sequentially. However, even though we increased both production and deliveries, average global delivery wait times increased because our production growth was unable to keep pace with increased demand.

In other words, the most modest glitch in manufacturing could cause the forecast to slip.

READ ALSO: Tesla to Move Into Driverless Car Business

Tesla’s shares have risen from $116 during the past year to $280. The company’s market cap, at $35 billion, is more than half that of General Motors Co. (NYSE: GM). The number one American car company will produce well over 9 million vehicles this year.

The 35,000 marker is important because it is a milestone on Tesla’s path to sell 500,000 cars a year by 2020. The effort should be helped by the introduction of a new Tesla model that could sell for as little as $35,000. This price point presumably will open demand to a large pool of buyers who have modest incomes. Yet, the introduction of the product does not mean Tesla can satisfy what it believes will be ongoing surges in demand.

Production interruptions are nearly as old as the car industry itself. Chevy recently stopped delivery of its new 2015 Corvette, which is in as much demand as any niche car GM has launched in years. The interruption is called a “stop order” and apparently involves the car’s airbag. A significant number of these Corvettes have not even left the plant where they are assembled in Bowling Green, Ky.

By some estimates, a Tesla vehicle has fewer parts than most traditional cars. In theory, that means it has fewer parts that can break. However, it only takes one essential piece to malfunction, and Tesla could run into the same problem Chevy is having with the Corvette.

Tesla plans to deliver 35,000 cars this year. In the excitement about the company, the importance of that figure has been lost. That could change if it cannot hit the forecast.

READ ALSO: As Car Sales Highest Since 2006, These 5 Stocks Will Benefit

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