During a conference call on Monday with financial analysts to discuss a new bond offering, CEO Elon Musk let slip that his original estimate of annual Tesla Model 3 totals was about 200,000 short — now he’s saying that the all-electric car company will likely produce 700,00 units of the Model 3 annually one day.

Tesla Model 3

Musk based his calculations on current daily net orders (1800) and total net reservations (455,000). With much anticipation as the company’s first mid-priced car, the Tesla Model 3 poses a significant challenge to the all-electric car company and Musk’s leadership.

The Tesla Model 3: It’s All about the Volume, Stupid

Previously, Tesla’s luxury line of vehicles has been produced in much smaller numbers. For example, in 2016, the company made 83,922 vehicles. That was up 64% from previous year. At the Q2 mark for 2017, the company had delivered 47,100. The lower base price of the Model 3, beginning at $35,000, is well shy of the usual Tesla cost of around $90,000. So, in a turn that is contrary to the company’s modus operandi, Tesla hopes to reach a much wider audience through higher volume.

The first Tesla Model 3 was delivered on July 28, 2017 to much media acclaim. Then Musk had said he expected Tesla’s output to reach 500,000 Model 3 cars a year in 2018.

Tesla’s Secret is Anticipating the Innovations that Will Succeed

Tesla knows which next innovation is good for you, whether you know it or not.

That’s according to Consumer Edge Research LLC senior analyst, Jamie Albertine, whose comments to The Street came after Tesla’s recent investor call hosted by Goldman Sachs. Albertine, whose independent equity research boutique focuses on the global consumer sector, argued, “The market should want to give innovative companies more capital as long as they perform, and Tesla is clearly performing.”

His analysis came after Tesla announced on its website that it will be offering “$1.5 billion in aggregate principal amount of its senior notes due 2025.” In part, Tesla will apply the net proceeds from these senior notes to “strengthen its balance sheet during this period of rapid scaling with the launch of Model 3.”

Moody’s Pessimistic about Tesla’s Credit Risks

Everyone is talking about the recent launch of the Model 3, which is the all-electric automaker’s first mass market vehicle. Moody’s has forecast that Tesla’s “unprecedented ramp-up” in production of the Model 3 raises “considerable” credit risks and, as a result, Moody’s anticipates that Tesla will face large cash requirements through 2018 due to:

  • a negative free cash flow outlook,
  • Model 3 launch uncertainties, and
  • potential cash requirements necessary to cover the maturities of its convertible debt.

Albertine is not so sure. He notes that Tesla is “constantly spending on the next big innovation, whether the public knows what that is or not.” The public may not be able to recognize which innovations will stick, but it knows what it likes in an EV. In a CleanTechnica report, up to 50% of current EV drivers plan to get a Tesla Model 3 next.

The new notes offering will not dilute equity holders. Seeking Alpha calls this deal “singularly unique,” in that few companies with the market capitalization of Tesla at $59 billion carry speculative grade debt ratings. This is the first occasion that Tesla has chosen to sell non-convertible bonds.

Photo credit: Neo Love via Foter.com / CC BY