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Tesla Motors Inc Model X Will Hurt Deliveries (If This Rumor Is Right)

Tesla Motors Inc (TSLA) Model X

Tesla Motors Inc gave a small gift, or repaid a debt, to its investors over the weekend. The firm managed to ship the first Signature Model X in and managed to follow that up with the shipment of a couple more units of the car. The EV SUV appears to be ready for the prime time, but a new report suggests that might be bad for the firm.

Tesla Motors Inc Model X
Model X parked outside Tesla Motors’ Fremont plant.

Clean Technica published a rumor that it said was from a reliable source last Friday, December 18. The firm said that Tesla Motors was really ramping up production of the Model X. In particular the source, which the outlet’s Kyle Field says is “inside Tesla,” said “every other car off the line is the X.” That should come as a very interesting point for traders.

Tesla Motors Inc ramps up Model X

There’s no doubt that Tesla Motors Inc  is ramping up its production of the Model X, but it seems a little early to suggest that half of the cars coming off of the line are SUVs.

Mr. Field said “This is fantastic news, as it indicates that regardless of what is actually being delivered to customers, the X is rolling off the lines at the same rate as the full-production Model S.” That news may not be met by shareholders with the same enthusiasm, however.

There’s lots of reasons to think that ramping up production of the Tesla Motors Model X could hurt overall deliveries for the firm’s fourth quarter. Those shipment numbers are, on Wall Street at least, the most important target hanging over the firm right now. If Tesla Motors fails to meet expectations for the three months Elon Musk will have a whole lot of explaining to do.

Doubting the Tesla Motors Model X

If Clean Technica is right, and there’s a lot of doubt around any rumor like that, then Tesla Motors may see pretty big disruption to its shipment numbers in December. We know that Tesla Motors hopes to eventually be making 800-900 Model X SUVs for shipment every single week, but the firm is at not likely to be near that level just yet.

Model X shipments have just started, and Tesla Motors has gotten nothing but a handful of Signature versions of the EV SUV out the door since this weekend. Sales are due to ramp up in the coming weeks, but even the most optimistic reports, like that from Dan Galves of Credit Suisse, are looking for only a couple hundred shipments by the end of the year.

Deutsche Bank analyst Rod Lache said that the Model X only accounted for about one-in-fifteen cars on the firm’s line in the first week of December. It’s almost certain that the firm has boosted that number since it’s now readying shipments, but increasing activity by that much in such a short time period defies expectations.

If the firm has put a huge amount of its production efforts into the Model X, it’s very likely that side of the line is much less productive in terms of ship-through than a line that’s making just the Model S. The first batch of the Model X is likely to undergo much more rigorous testing than the Model S at this point in the production cycle.

Tracking Tesla Motors shipments

It could be the case, of course, that Tesla Motors shipments have gone so well in the last week that the firm is willing to simply give up half of its production in order to set the Model X up for the rest of the year. The firm said in its third quarter earnings report that it would ship between 17.000 and 19,000 cars for the three months through December.

Tesla Motors Inc will secure its biggest quarter ever, by a huge margin, if it hits those numbers. The firm left a huge 2,000 unit gap in the forecast, news that analysts took as insurance against the Model X rollout.

In short Wall Street expected Tesla Motors to be able to get around 17,000 Model S sedans to buyers in the fourth quarter. On top of that Model X units were thought to be icing. With shipments starting so late in the quarter it was assumed that they wouldn’t amount to any significant number. If Clean Technica is right, however, Tesla Motors is building the cars at a higher rate than anyone expected, but that doesn’t mean it’s shipping them.

Looking for real Model X numbers

Tesla Motors Inc  is likely to release sales numbers for the fourth quarter just a few days after the New Year, but it’s questionable whether we’ll see anything about the Model X in that release. The firm is more likely to confirm fourth quarter sales at the time it reveals its full earnings for the period.

There are a couple of assumptions here about why this could be bad for Tesla Motors Inc . First we assume that the ship-through rate on the Model X is substantially lower than the ship-through rate on the Model S. Second we assume that the firm isn’t going to comfortably hit its 17,000 number for the three months through December.

It’s possible that Tesla Motors will begin to ship the Model X very quickly in the coming week, and it’s also possible that Model S shipments have been so spectacular in the first ten weeks of the fourth quarter that it will hit that number with ease. If that’s the case then an early focus on the Model X may be the best strategy after all.

With shipments of the Signature Model X still apparently very slow, and such a short number of days left in the quarter, it seems much more likely that Tesla Motors hasn’t yet switched half of its production to the Model X. The rumor relayed by Clean Technica may have simply been at a single point of time rather than an ongoing production numbers. If it has then it would shrug off a lot of expectations focused on the firm.

Elon Musk has, of course, never been one to meet expectations, so this might indeed be the direction he has chosen for Tesla Motors. It will be interesting to see what effect that has come the firm’s earnings report in February.

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