It’s not about what Elon Musk said, it’s about how he said it.
There’s a plain and simple reason you clear your browsing history before the parents, kids, laptop-borrowing roommates, or SO gets home. Put in kosher terms, it’s because there’s a public face we all want everyone else to see and then there’s the face that exists underneath. And that’s just as true for humans with freaky desires and Internet access as it is for automakers with shareholders to impress. For people, it’s Google that knows more than we’d like it to, but automakers like Tesla keep their secrets with the California Treasurer.
A January 2017 application for sales tax exemption filed for the California Alternative Energy and Advanced Transportation Financing Agency program (CAEATFA for the short-winded) and uncovered by Daily Kanban outlines the differences between Tesla’s production claims that it tells its customers and shareholders and what it tells the government. The report claims, “Tesla represents the Project will launch the Model 3 and provide the capacity to produce and deliver an average of 226,563 units per year over a five year period, in addition to its Model S and Model X production.” The problem with this statement is that, at least from a logical standpoint, it makes reaching Elon Musk’s production claims impossible.
Those same claims are partially responsible for helping Tesla reach such a high market valuation, one that surpassed Ford and General Motors to become America’s most valuable car company in April 2017. Just how much discrepancy is there between Musk’s claims and plausible output given that we now know how many Model 3s Tesla intends to build? For that, we need to reference what Musk said during Tesla’s Q2 2017 earnings call. "What we have ahead of us, of course, is an incredibly difficult production ramp. Nonetheless, I think we’ve got a great team, and I’m very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year,” said Musk.
It takes simple math to figure that Tesla would have to produce 520,000 vehicles per year for an output of 10,000 vehicles per week. If the Model 3 makes up roughly half of that number, then the rest would have to come from the Model S and Model X. Daily Kanban previously reported that Tesla was looking to expand production of “Gen 2” vehicles, which are the up of the Model S and Model X, to 190,000 units per year. That’s about twice as much as Tesla currently sells, a feat that seems hard to believe given that both models are high-dollar variants that are steadily reaching replacement age (at least if Tesla wants to follow industry norms). But even if Gen 2 production reaches that peak, Tesla will fall short.
Combining the two proposed production rates yields 421,563 vehicles per year, or 8,106 per week. That’s 20% less than Musk initially proposed, considerable in the eyes of shareholders. Of course, Musk did word his statement so that he wouldn’t be lying as long as Tesla had a single week where it produced a combined 10,000 vehicles per week by the end of 2018, but ambiguity with so much wiggle room for the output numbers is something shareholders will not be happy with. Of course, there is a brighter alternative. If Tesla debuts a new model next year, such as the Model Y, or refreshes the Model S, Model X, or does all of the above, output numbers could be bolstered so that they’re more in line with investor hopes.