Tesla’s production of lower cost Electric Vehicles (EVs) is expected to soar after completing its third Gigafactory in Shanghai, China and increasing production at its existing factories in Fremont, California, and Reno, Nevada.
In its recent earnings call on Wednesday, January 29, Tesla said it will produce up to 650,000 of the $33,990 Model 3 sedans and $52,990 Model Y SUVs, combined. The new models are priced well below the previous generation Model S sedan and Model X SUV, and are expected to eclipse them in sales. With the Model S starting at $79,990, and the Model X starting at $84,990, these new models present an attractive new entry point into the EV market.
Based on these production capacity figures, the Model 3 and Model Y could account for a significant majority of Tesla’s 2020 sales. After Tesla set a sales set a record of 367,500 vehicles in 2019, the company should “comfortably exceed” 500,000 this year, it said. The Model 3 is the company’s most popular vehicle, accounting for 82% of sales in 2019 compared to 59% in 2018.
The Model Y is new for 2020, but preparations are already ahead of schedule and deliveries will begin in March.
The shift toward lower cost, higher production models likely will put pressure on Tesla’s profit margins, but higher volumes and production efficiency improvements could lead to much higher overall profits. The trend toward heavier environmental regulation of fossil fuels globally represents a significant opportunity for Tesla to capture a fast growing demand for EVs at lower price points, while remaining leaps and bounds ahead of competitors.
Having never made a profit over any 1 year period, critics remain skeptical. But Tesla’s 2019 results shed light on the positive results from its investment into production capacity, disruptive technology, and process improvements. The company lost $4.92 per share on $24.6 billion in revenue for 2019, compared to $5.72 per share and $21.5 billion in revenue for 2018.
Additionally, Tesla’s fourth-quarter earnings results handily beat analyst’s estimates. Expectations were for an adjusted profit of $1.74 per share and $7.1 billion in revenue, but came in at $2.14 per share on $7.4 billion in revenue.