Can Tesla Sell 100,000 Cars Next Year?

The primary reasons it is hard to forecast Tesla sales are 1) it will have two models for sales in 2016 instead of the one model it sells now, and 2) there is an ongoing concern about Tesla’s production timing. The two issues come together in one product, which is the Tesla X sport utility vehicle. In management’s letter to investors for the most recent quarter, founder Elon Musk and Chief Financial Officer Deepak Ahuja wrote:

As we prepare to launch Model X in September, we are building more validation vehicles, executing final engineering and testing work, enabling our new manufacturing equipment and finalizing arrangements with our suppliers. We have been producing release candidate Model X bodies in our new body shop equipped with more than 500 robots as we fine-tune and validate our production processes.

This means Tesla still has a great deal of work to do in just a few weeks to hit the Model X launch date.

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While there is not a great deal of public analysis of how Tesla’s sales will increase over the next several years, Tesla management claims its Gigafactory will produce 500,000 vehicles per year in the “latter part of the decade.” But what about 2016? Musk and some car experts, who believe his view of Tesla’s prospects, expect the Model X to be as popular, if not more so, than the Model S. If so, and production capacity can come near meeting demand next year, the electric car company should sell 100,000 vehicles. The margin for error is thin. Musk was not clear about why the company will not hit 2015 forecasts, but if demand is strong then the constraint in production has to be the impediment. Right now, a fully functioning, fully completed Gigafactory is dream.

Production problems are not unique to Tesla. The industry in general has not perfected matching production with demand. Case in point, Ford Motor Co. (NYSE: F) continues to miss its production target for the best-selling vehicle in the United States, the F-150 pickup. After more than a century since its founding, the second largest car company in America has harmed itself by missing dates. A young, small car company, with much less experience in production management, can do just a poorly as a large one when it comes to timing of production.

However, Tesla’s biggest enemy is not itself. Every major company in the world would like to have its own versions of Tesla models. Right now, the largest manufacturers in the world are playing catch up. One of them, at least, will match the Tesla formula in the next few years. Tesla’s goal of reaching sales levels close to a million a year will start to boil down to direct competition, as is the case with every other manufacturer.

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There is nothing of substance to keep Tesla from selling 100,000 vehicles next year, if it can launch a new model on time, and then can build it.