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What If Tesla Makes 4,999 Cars a Week?

24/7 Wall St. logo 24/7 Wall St. 30/06/2018 Douglas A. McIntyre

a car parked on the side of a road © Courtesy of Tesla

In a week or two, Tesla Inc. (NASDAQ:  TSLA) founder and CEO Elon Musk will say whether his company has been able to make 5,000 of its new inexpensive Model 3 vehicles a week. It will tell whether the company can produce cars fast enough to catch up to demand, which may be as high as 400,000, and push toward the profit it has not been able to reach after years of operation. But what is the real threshold for investors? What if the number is slightly above or below the 5,000?

The 5,000 number is a magic one, at least as far as the media has reported and many analysts have said. As recently as two months ago, Tesla's Model 3 production was not even close. Tesla has opened more factory capacity, and Musk currently sleeps on the floor next to one production line, presumably to spur on his workers. Or perhaps he is actually helping assemble cars.

If the weekly production number is, say, 5,100, Tesla's stock should shoot up. Musk will have proven that his complex factory infrastructure has been turned into a mass production facility. Problems with parts suppliers, rumored factory fires and stories of angry workers will fade. Tesla claims that 400,000 people have made deposits on the Model 3. Tesla can start to eat through that demand. At a price of $35,000 each, strong production will sharply lift Tesla's revenue. Analyses that Tesla will need to raise money and dilute shareholders also will fade.

However, there is some weekly production number below which investors will panic, and pessimistic investors and analysts will gloat. The short interest in Tesla shares is among the highest of stocks traded on the Nasdaq. At just over 37 million, the shares sold short are 30% of the float, which means the bets that Tesla's share price will fall are substantial.

Musk will need to make an unusually convincing argument that any number below 5,000 a week is acceptable. Many investors and much of the media already believe he is sort of a shady used car salesman and this will make it hard. A figure of 4,999 may be too low.

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