Tesla says it will build 500K cars a year by end of 2018; can it?

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Tesla Model 3

Tesla Model 3

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When Tesla Motors CEO Elon Musk said two years ago that the electric-car maker planned to be building half a million cars a year by the end of 2020, it seemed an ambitious stretch goal.

When he said on last week's quarterly earnings call that the company was pulling that goal two years ahead to 2018, you can almost hear the gasps.

That means that Tesla intends to boost its production by a factor of 10 in a mere three years.

DON'T MISS: Tesla projects total 2016 sales of 80,000 to 90,000 electric cars

Tesla delivered 50,557 cars last year, a 60-percent increase over the 31,655 it sold in 2014.

On the call, the company said it expected to deliver 80,000 to 90,000 cars during 2016.

But if history is any guide, that guidance may fall slightly, and Tesla could come in at the low end of the range. Indeed, that 80,000 cars would be a second consecutive 60-percent sales rise.

Tesla Model 3 design prototype - reveal event - March 2016

Tesla Model 3 design prototype - reveal event - March 2016

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Such a growth rate would be fantastic for an established automaker in any market, much less globally, but no company has tried to do what Tesla is attempting.

And more than a little skepticism exists about whether Tesla can get to 80,000 this year.

Even longtime Tesla booster Adam Jonas, an analyst at Morgan Stanley, suggested yesterday that the total would be more like 70,000.

CHECK OUT: Tesla 2015 Deliveries Squeak Past 50,000, With 208 Model X During Q4

But even if Tesla manages 80,000 in 2016, two further 60-percent increases will get the company only to 205,000 for 2018.

Adding two more on top of that pushes Tesla to sales of 520,000 in 2020—or right on target with its previous goal.

But now the company, buoyed by almost 400,000 deposits of $1,000 apiece for its upcoming Model 3 car, plans to achieve a far higher growth rate over the next two years.

2016 Tesla Model S

2016 Tesla Model S

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Those sales won't come from today's Model S and Model X, which start at $72,000 and frequently sell for more than $100,000. The global luxury market just isn't that big.

But for the sake of argument, let's assume Model S and Model X sales will continue to grow at 60 percent a year for 2017 and 2018 too.

Even if it sells 205,000 of the two cars in 2018, it would need to add another 300,000 Model 3s that year to get to its half-million goal.

WATCH THIS: Tesla Model 3: video of first ride in prototype $35k electric car

Technically, the goal is to be selling at a rate of 500,000 cars a year by the end of 2018, so let's assume that Model 3 deliveries will be back-loaded to the second half of 2018.

That would still mean that Tesla has to be selling more than 40,000 cars a month by December 2018.

Of those, less than half will be the Model S and Model X—and at that rate, they would be among the very highest-selling vehicles in the large luxury segment.


 
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