Elon Musk: up to 200k Model 3s by end of 2017

During Tesla's Q1 earnings conference call to shareholders, Elon Musk addressed wether Tesla will be able to meet its deadline in delivering the Model 3 end of 2017 by saying:

"we would aim to produce 100,000 to 200,000 Model 3s in the second half of next year. That's my expectation right now... our 2020 target for Tesla Models volume is closer to 1 million vehicles.
Now what I would say to anyone that is thinking about ordering a Model 3, now is a good time to actually place your reservation or place the order, because you don't have to worry about placing your order and receiving it five years from now. If you place your order now, there's a high probability you will actually receive your car in 2018. So I'd really recommend that anyone who wants to receive their car in 2018 place their order very soon."

He went on stressing how important it is to be honest with suppliers by setting a deadline of July 1, 2017 for parts' deliveries:

"The date we are setting with suppliers to get to a volume production capability with the Model 3 is July 1 next year... in order to achieve volume production of a new car with several thousand unique items, you actually have to set a target date internally and with suppliers that is quite aggressive. And that is a date that has to be taken seriously. Now, will we actually be able to achieve volume production on July 1 next year? Of course, not. The reason is that even if 99% of the internally produced items and supplier items are available on July 1, we still cannot produce the car because you cannot produce a car that is missing 1% of its component. Nonetheless, we need to both internally and with suppliers take that date seriously, and there needs to be some penalties for anyone internally or externally who does not meet that time frame. This has to be the case, because there's just no way that you have several thousand components, all of whom make it on a particular date. So the reality is that the volume production will then be some number of months later as we solve the supply chain and internal production issues.

He then added:

"... So along the way, we will be assessing progress and our confidence level if the suppliers will meet the July 1 target. If it looks like they will not, we'll have a conversation with them. If our comfort level drops below a certain level, they will not be a supplier to Tesla... Those that didn't perform very well on say prior programs are unlikely to be selected for the Model 3 program."

In a reply the question if the Model 3 will have the same delays in production and release date as the Model S and X, Elon said:

"It's always tempting for people to reason by analogy instead of first principles. And that would be the mistake of assuming that anything to do with the X production has bearing on Model 3. They are very different programs with completely different approaches. So I would not try to extrapolate from that any more than it would've made sense to extrapolate from the Roadster that when we were making 600 cars a year to 20,000 cars a year with the Model S. So in the Roadster case we went from making 600 cars a year in 2010 where Lotus made the body and chassis, we made the power train and we did final assembly. It was a far simpler car than the Model S. We tell people we're going to do 20,000, get to around 20,000 cars a year with the Model S despite it being a vastly more complicated car and a car where we made the whole car and not just the power train.

... The S was the first car we really designed ourselves, and it was all about just trying to make the car work in the first place. X was basically built off of the S platform, but then even more complicated, so unfortunately even harder to make. The Model 3 is the first car Tesla is creating that is designed to be easy to make. This is really a fundamental difference. And then I mentioned also increasing the scope of our in-house abilities so that if there is a supplier that is unable to deliver on time, we can scramble fast and produce that component in house."

On the 500,000 volume production composition by 2018:

"... it's something like 100,000 to 150,000 S and X, and then 300,000 to 400,000 of 3. But it is still really hard to say."

Later on he reiterated his confidence to deliver 500,00 vehicles by 2018:

"...our ability to recruit top manufacturing talent to the most compelling product on earth is very strong. We find the response to be extremely good when we call people up. So based on the rate at which we're adding world-class manufacturing expertise and some of the things that I know we're going to announce in the future, I feel highly confident that the Model 3 is going to be well executed as a program...the quality and the motivation of the suppliers involved in the program massively increased... I mean, every supplier wants to be in this program."

On whether Model 3's battery cost will be under $190/kWh:

"... it's pretty obvious that we will exceed anyone else in the world in scale economies with the Gigafactory, and we're very confident in Panasonic's ability to execute on that front. So I just don't know anyone who in terms of intrinsic cost is going to be close to what the Gigafactory can produce on a cost per kilowatt hour basis.". 
He then confirmed that the compound annual growth rate of decline until the Gigafactory is open will be another 30% on the battery cost once the Model 3 is on the production line.

On Model 3's battery capacity:

"The average energy content of a 3 pack is certainly going to be less than 75 kilowatt. It doesn't clearly need to be anywhere near 75 kilowatt to achieve the range of 215 miles. But we don't want to get into the nitty-gritty. It's probably unwise."

On whether the Model 3 is still in prototype phase:

"Well, from an engineering standpoint, we are already almost complete with the design of Model 3. And in fact, the prototype that was driving at the [Motor Event] at the end of March was actually using the production drive train. So I think we feel pretty good about engineering completion of the last items probably within six to eight weeks, thereabouts. And so we're sort of completing the final release for tooling no later than the end of June. That sort of leaves roughly nine months for the tools you manufacture, which I think is an achievable time frame. [Get] some suppliers, but it's an achievable time frame. If you can have – you can create a human baby in nine months, you can pretty much make a tool in nine months. So that's our expectation. So then we want to have parts of production tooling starting in April next year. Still we've got three months of validation for a normal start of volume production in July.

Again, it's a nominal start, and it's a date that we internally take seriously and that suppliers need to take seriously. But it is one where inevitably there will be some small number of items that cause slippage such that the actual date of reaching volume production is some number of months after that. This is simply in the nature of things. It's unavoidable... It is an impossible date because there are 6,000, 7,000 unique components in the Model 3 and that would assume that all of them arrive on time... The probability of it is occurring is incredibly low of actually achieving it on July 1 but nonetheless, it's a date we have to take seriously."

"...this is a small part of why the Gigafactory was – we accelerated some of our plans there. And we're still on track to have first cell production starting at the end of this year so that we'll be able to ramp up to match the Model 3 schedule as well" J.B. Straubel added.

"... Tesla is really hell-bent on being the world's best at manufacturing. Like this is a big deal. And I think it's the right thing to do because what we're trying to do is get as many electric cars on the road as possible. And what's the limiting factor? Well, it's production. Like how can we scale and scale efficiently? And so we need to get to – we need to figure out how to be the world's best manufacturing and that's what we're going to be hell-bent on doing." Elon emphasized.

On whether Tesla is relying on Model 3 reservations for cash flow:

"I don't think we want to rely too much on customer reservation money as a source of capital. Maybe there is a buffer or something, but it's not as a primary source of capital."

On whether Model 3 will be profitable versus the competition:

"... we're highly confident that it can be made profitably and the design manufacturing and economies of scale are really the keys to achieving that outcome. Yeah, I think GM is not aiming for anything near the volumes that we are, and so they're – I mean despite being a big company, their economies of scale are going to be driven by whatever elements are unique in their EV. And we know for a fact that they will not get the economies of scales that we will be at for Model 3."