Tesla’s Gigafactory Shanghai continues to take shape, and in Q2 the automaker started to move machinery into the facility for the first phase of production there. This will be a simplified, more cost-effective version of the Model 3 line with capacity of 150,000 units per year, the second generation of the Model 3 production process.
Just like in the US, the Model 3 base price of RMB328,000 ($49,200) is consistent with its gas- powered competitors, even before gas savings and incentives. Given Chinese customers bought well over a half million mid-sized premium sedans last year, this market poses a strong long-term opportunity for Tesla. The company will start production in China by the end of this year. Depending on the timing of the Gigafactory Shanghai ramp, Tesla continues to target production of over 500,000 vehicles globally in the 12-month period ending June 30, 2020.
In the second quarter of 2019, Tesla achieved record deliveries of 95,356 vehicles and record production of 87,048 vehicles, surpassing their previous quarterly records of 91,000 deliveries and 86,600 units produced in Q4 of 2018. This is an important milestone as it represents rapid progress in managing global logistics and delivery operations at higher volumes.
In Q2, Model 3 deliveries reached an all-time record of 77,634. Not only was Model 3 once again the best-selling premium vehicle in the US, outselling all of its gas-powered equivalents combined, this product also gained traction in other markets. In Europe, Model 3 is approaching sales levels of established premium competitors. More than 60% of Model 3 trade-ins were non-premium brands, indicating a larger total addressable market for this product than initially expected. Now that all current variants of Model 3 are available across North America, Europe and Asia, Tesla is gaining insight into preferred customer trim mix.
During the quarter, a majority of orders continued to be for a long-range battery option and the Model 3 average selling price (ASP) was stable at approximately $50,000. At the same time, manufacturing costs continued to decline. The production rate of Model 3 continued to improve gradually throughout the quarter, breaking a monthly record in May and then again in June. All manufacturing equipment in Fremont has demonstrated capability of a 7,000 Model 3 vehicles per week run rate, which the company is working to increase. They aim to produce 10,000 total vehicles of all models per week by the end of 2019.
Model S and Model X production continues to run on a single shift schedule, and over 14,500 vehicles were produced in Q2. The deliveries increased sequentially to 17,722 as Tesla continues to prioritise inventory reduction (working capital management). As a result, the total new car inventory levels have fallen to just 18 days of sales (including vehicles in transit, on ships and company owned vehicles), compared to the industry’s typical US inventory level of ~70 days of sales.
Preparations for Model Y production in Fremont began in Q2. Due to a significant overlap of components between Model 3 and Model Y, Tesla will be able to leverage existing manufacturing designs in the development of the Model Y production facilities. Additionally, they are making progress managing Model Y cost with only a minimal cost premium expected over Model 3. Due to the large market size for SUVs, as well as higher ASPs, the company believes that Model Y will be a more profitable product than the Model 3.
Tesla’s Supercharger capacity has grown to roughly 1,600 charging locations worldwide. In addition to the number of charging locations, the automaker is also increasing the rate of throughput of vehicles. Tesla expects the average charging session at the powerful V3 Superchargers will drop to around 15 minutes, which will effectively double the overall throughput rate per stall compared to our V2 Superchargers, easily keeping pace with the fleet growth.