Tesla's Aggressive New Production Ramp Looks Crazy

Data source: SEC filings and conference calls.

And you thought the skeptics were loud before.

Tax planning

Tesla is widely expected to hit the 200,000 U.S. unit mark in early 2018. But the phase out period lasts four to five quarters, during which time the incentive is not volume limited. It slowly declines from 100% to 50% to 25% in the following quarters. So if Tesla is able to significantly ramp production as it hopes and maximize deliveries within that window, it can maximize the number of customers that receive full or partial credit.

Going to such extraordinary lengths certainly benefits Tesla in the form of increased sales, as well as increased order conversion rates since that credit will help support demand, but it also benefits consumers because they're the ones that receive the tax credit. Tesla will earn quite a bit of consumer goodwill.

Sooner rather than later

There's another important consideration for investors. Model 3 and the expected unit volumes are the foundation of Tesla's lofty valuation. Without Model 3, Tesla isn't worth its market cap of over $30 billion. For context, that's three times the market cap of traditional automaker Fiat-Chrysler , which is worth about $10 billion right now.

This accelerated ramp, if Tesla achieves it, also means that Tesla may be able to live up to its premium valuation sooner rather than later, but it will be no easy task.

Will it be different this time?

Musk is infamous for his track record of overpromising on important operational deadlines and milestones. On numerous occasions at his different companies throughout his career, he has been overly ambitious with timelines. It's for this reason why investors are generally skeptical about any time frame that he promises.

Here's the thing: Musk is keenly aware of his bad habit. Even at the Model 3 unveiling, he self-consciously laughed at his assertion that Model 3 will launch in 2017, hedging his statement by walking it back to a "fairly confident." Musk knows how he is perceived -- yet he still went ahead and dramatically accelerated Tesla's production plans. That should underscore just how confident (or crazy) he really is.

A secret billion-dollar stock opportunity

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Tesla's Aggressive New Production Ramp Looks Crazy originally appeared on

Evan Niu, CFA owns shares of Tesla Motors, and has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More