Tesla Finally Hits Its Model 3 Goal—And Immediately Ups the Ante

In the year since Tesla officially launched the Model 3 at a glitzy event in Los Angeles, one question has reigned supreme among those following the upstart automaker: How many can it build?

At the time, CEO Elon Musk, with his penchant for hyper-ambitious goals, said Tesla would build half a million cars in 2018—a five-fold increase from 2017. That would include 5,000 Model 3 sedans every week. Then came months of teething troubles, back-tracking, and admissions from Musk that he got things wrong. Targets for the car have been reset and reworded. The initial goal of 5,000 vehicles produced per week by the end of 2017 became a target for end of the first quarter of 2018. Then the end of the second quarter.

Finally, Tesla has hit that retreating target. The automaker reported to investors today that it produced 5,031 Model 3 sedans in the final week of the quarter, just clearing Musk's bar. The company also made 1,913 Model S sedans and Model X SUVs.

The slim victory marks an important step on the road to Tesla's real goal: sustained profitability. Musk is aiming to put his automaker in the black for the remainder of 2018, and the only way to do it is to build enough Model 3s for sales revenue to outweigh the cost of running the factory. (Musk recently laid off nine percent of Tesla's workforce to cut costs.)

Musk thrives on ambitious targets, but his routine failure to meet them has never been much of a problem. He's a master at resetting expectations, and Tesla investors and customers have gotten used to cutting him slack. The Model X debuted more than a year after its original deadline. Musk promised an "alien dreadnought" factory free of humans, only to admit "humans are underrated." He said a Tesla would drive itself across the country by the end of 2017; there's still no sign yet of that happening.

But in recent months, that track record has seemed to wear on the people who matter. Musk recently annoyed investors by refusing to answer financial questions he deemed "boring"—during an investor call meant for answering financial questions. Some investors have questioned his leadership of the company. And for the first time, Tesla is about to face real contenders in the sporty, capable electric vehicle space, from the Jaguar I-Pace, Audi e-tron, and Porsche Taycan.

And so with Model 3 production—an issue central to the success of the company—Musk seems to have decided enough is enough. This felt like a milestone he needed to hit.

Tesla had to resort to some unorthodox production methods to make it happen. It builds most Models 3s on what it calls General Assembly line three, or GA3. But with the end of the quarter looming, Musk expanded capacity by setting up another assembly line in a giant tent in the parking lot of its factory in Fremont, California. Of the 5,031 Model 3s built this past week, 20 percent came from the tent.

“We expect that GA3 alone can reach a production rate of 5,000 Model 3s per week soon, but GA4 helped to get us there faster and will also help to exceed that rate,” the company said in a statement. Whether that’s unsustainable or ingenious depends on your views of Tesla and Musk in general. Production veterans say they've never seen anything like it and raised questions about build quality. Tesla insists cars coming from the tent are as good as those coming off the conventional line.

With these new numbers, it appears Tesla is at last pulling itself out of "production hell." But there's plenty of difference between a seven-day burst of production and keeping it up, let alone increasing output. “One week of achieving a production milestone is just the beginning,” says Michelle Krebs, an auto industry analyst at Autotrader. “Tesla’s task going forward will be to routinely and consistently meet production targets and quality.”

And Tesla still has a long way to go to catch the automakers that crank out this many cars without trouble, as Steven Armstrong, who runs Ford Europe, was quick to point out.

Today's announcement comes with a few other tidbits. When Tesla first revealed the Model 3 in 2016, it allowed prospective buyers to hold their place in line with a deposit of $1,000. In the following few months, more than 450,000 people plonked down cash. Tesla is typically reticent to give updates on that number, leading to occasional speculation that a lot of buyers cancelled and asked for their money back. But today, Tesla said it still has 420,000 reservations. It has delivered 28,386 Model 3s so far. So even if it can hit the 6,000-per-week rate, it's got 18 months before it has to worry about wooing new buyers.

The company doesn’t break that number down, so it’s impossible to know how many of the reservation holders are waiting for the $35,000 variant of the Model 3. Right now, Tesla is only making performance-focused versions with higher profit margins that start at $49,000 and top out at $74,000. The entry-level version—with a smaller, cheaper battery pack that offers 220 miles of range—will come in six to nine months, Tesla promises.

That might be good for the bottom line, but it could also mean some buyers waiting for the cheaper car miss out on an important tax break. Once any company hits 200,000 total EV sales in the US, the $7,500 federal tax credit for buyers of its electric vehicles starts to phase out. Tesla doesn’t break out sales by region, and its update today doesn’t give any information on total US deliveries, but it is close to the magic number. A recent spate of Canadian deliveries indicates it's been working to push it off until the start of July: Crossing the 200k mark in the third quarter of the year buys it three more months of tax credits. (Today's update reveals 11,166 Model 3s and 3,892 Model S and X vehicles were “in transit” to customers at the end of last month. It says the large numbers were due to the bump in production, but it could also be strategic.)

“The last 12 months were some of the most difficult in Tesla’s history,” Tesla’s statement says. “It was not easy, but it was definitely worth it.” Never one to sit back and enjoy a victory, Tesla is already promising it will be making 6,000 Model 3s a week—by the end of August.

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