Should you buy a Tesla Model 3 or a Model S?

If you’re in the market for a Tesla sedan, then you might be wondering if you should buy a Model 3 or a Model S.  Nowadays, a used Model S (ie., 4-5 years old) can be as inexpensive or even more inexpensive as a Model 3.  However, with a used Model S, the car might be out of warranty and you might not have the latest features like Autopilot.

In my opinion, the Tesla Model 3 is the preferred car unless you really need or want the Model S.  The Model S has more cargo room so is much better for road trips, especially if you have a family.  Even though the Model 3 has more cargo room compared to its competitors, the Model S is in a class by itself in terms of cargo room.  The rear hatchback design and fold-down seats (the Model 3 also has fold-down seats) allow one to pack a ton in the back.  With my 2013 P85 I was able to haul home a 70″ TV in the box… that’s right, the whole box fit into the car which is quite amazing.

The Model S also is a more smooth and comfortable ride on the freeway.  So if you’re doing a lot of freeway driving, especially if you have a very long commute, then the Model S might be the preferred choice.  In my own tests, I found my 2013 Model S P85 to be about 2dB quieter than the Model 3 as well.

The Model S is also more prestigious and eye-catching.  It’s a larger car but also the design intent of the car is more flashy than the humbler, less conspicuous Model 3.  So, if you’re looking for a prestigious car, then the Model S is the way to go.

However, if you’re not taking road trips with your family and don’t have long freeway commutes, then I was generally suggest the Model 3 is the way to go.   The Model 3 is a dream to drive with superb handling and performance.  It’s got everything a Tesla needs to have, including a 15″ center screen with navigation and media.  Autopilot is fantastic and is only getting better with software updates.  And the Model 3 is a more efficient car, meaning with less energy you’ll be able to go farther.

The amazing thing about the Model 3 is that it does not feel cheap compared to its much more expensive bigger brother, the Model S.  The Model 3 feels like driving the future, and it’s by far the best car in its class.

At this point Tesla has been extremely late on delivering their promised Model 3 production goals.  Initially, Tesla said they would reach 5000 cars/week by the end of Q4 2017.  However, they pushed that back to end of Q1, and then to the end of Q2.

In the most recent shareholder letter Tesla used timid language when saying they are still “targeting” a production goal of 2500/week by end of Q1 and 5000 cars/week by end of Q2.

However, at this point, I think we need to assume that the production ramp is more challenging than Tesla had expected, and that these production goals will also be pushed back.

I think it’s going to be difficult to reach 2500 cars/week.  One reason is that they previously shared that they were going to reach 1000 cars/week by the end of January.  I was expecting them to share that they reached that goal in last week’s shareholder letter or the conference call.  But they didn’t.  To me, it shows me it’s likely that they haven’t reached the 1000 cars/week goal yet.

While they could still theoretically do some crazy overtime to reach 2500 cars/week in the last week of March to reach the goal, I think even that might be out of reach.

Furthermore, 5000 cars/week by end of Q2 seems like an unrealistic goal as well, especially considering that they need to have all systems, including a new parts conveyance system, churning at optimal speed to reach that goal.

Overall, I think Tesla is working hard to overcome production challenges, and they ultimately will, but perhaps a little later than what is hoped for.

Yesterday after market close, Tesla released a Form 8-k to clarify Elon Musk’s comments the day prior regarding needing to move equipment from Germany to reach production ramp goals.

Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla’s Chief Executive Officer, during Tesla’s fourth quarter and full year 2017 financial results conference call held on February 7, 2018:

“[We] expect the new automated lines to arrive next month in March. And then it’s already working in Germany so that’s going to be disassembled, brought out to the Gigafactory and reassembled and then go into operation at the Gigafactory. It’s not a question whether it works or not. It’s just a question of disassembly, transport and reassembly. So we expect to alleviate that constraint. With alleviating that constraint, that’s what gets us to the roughly 2,000 to 2,500 unit per week production rate.”

The “2,000 to 2,500” units per week cited in this comment refers solely to the capacity of the additional automated battery module manufacturing equipment that is currently located in Germany, and not to Tesla’s total Model 3 production run rate or to the capacity of the automated battery module equipment that is already present at Gigafactory 1.  Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is not dependent on the additional equipment that is currently located in Germany, as that equipment is expected to start ramping production during Q2 2018.  With respect to battery module production, Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is dependent only on the equipment that is already present at Gigafactory 1, as well as the incremental capacity that is currently being added through the semi-automated lines that were also discussed during the conference call.

As stated in Tesla’s Fourth Quarter and Full Year 2017 Update Letter:

“We continue to target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2. It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time. What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.”

Tesla claims that they don’t need the new automated line equipment from Germany to reach their 2,500 Model 3 cars/week production rate by end of Q1 2018.  However, at this point, Tesla has lost much of their credibility regarding Model 3 production ramp guidance.

In order for Tesla to regain investor confidence, they need to do what they say they’re going to do.  This means, they need to reach 2,500 cars/week by end of Q1.  I, personally, think this is going to be difficult to achieve.

In the Q1 earnings call, Elon mentioned that having to make a new automated battery module assembly line costed them 6-9 months of time.  So, if they original goal was 5000 cars/week by end of Q4 2017, then that goal is pushed off by a minimum of 6 months.  So it appears that Tesla is aiming for end of Q2 2018 as to when they can reach 2,500 cars/week.  But this is likely an aspirational goal, and perhaps not realistic.  But we will see in less than 2 months.  Tesla will release their Q1 delivery (and production) numbers at the beginning of April.  If Tesla does manage to reach 2,500 Model 3 cars/week by that period, they will dispel all doubt and disappointment regarding the Model 3 production ramp.