When Tesla Motors Inc (NASDAQ:TSLA) started taking pre-orders for its “Model 3” electric car, I don’t think anyone doubted that the number would be huge. On the day after CEO Elon Musk unveiled the Model 3 to the world, Tesla reported that it had secured about 180,000 reservations, each of which comes with a $1,000 deposit. In a little over two weeks since Tesla started taking reservations, TSLA stock soared as much as much as 19%. Investors’ exuberance has since tempered a bit, but TSLA stock is still up an impressive 11%.
About a week ago Tesla announced that the number of pre-orders skyrocketed to 325,000, exceeding everyone’s expectations. In a series of tweets a few days before the announcement, Musk expressed his appreciation and revealed that Tesla expected one-quarter to one-half of the pre-order interest it has received. (Source: “Tesla got more than twice the Model 3 preorders it expected,” The Verge, April 2, 2016.)
Now get this: Tesla’s vice president of business development, Diarmuid O’Connell, just announced at the AVERE E-Mobility Conference that the company is now approaching about 400,000 reservations. (Source: “Tesla Model 3 ‘approaching’ 400,000 pre-orders as GM boss throws shade,” ZDNet, April 14, 2016.) That is an incredible number for a vehicle that has only been “on the market” for just about three weeks.
To give some perspective, General Motors Company’s (NYSE:GM) popular hybrid electric vehicle the “Chevy Volt” just passed the 100,000 sales mark since going on sale worldwide in December of 2010. Tesla surpassed that number in a few hours before production has even begun.
The “Nissan Leaf,” the world’s best-selling electric vehicle, has sold 211,000 units globally since it went on sale in 2010. (Source: “Tesla’s Unbelievable Model 3 Pre-Order Mirage: Be Careful What You Wish For,” Forbes, April 6, 2016.)
According to auto industry insider Bertel Schmitt, he’s “never witnessed such a high number of reservations.” (Source: Ibid.) Schmitt added that Ford Motor Company’s (NYSE:F) “Fiesta,” one of the world’s best-selling cars since it was launched in 2011, made headlines for getting “6,000 reservations and more than 100,000 handraisers, months ahead of its launch this summer.” (Source: Ibid.)
As it stands, if Tesla can fulfill every single pre-order in a decent time, the company is set to make a boatload of money and that will be a boon for TSLA stock. Tesla has already raked in almost $400 million in pre-orders alone. If no one cancels their reservation on the $35,000 vehicle, Tesla can count on adding about $14.0 billion to coffers when production starts late next year.
At this point, it’s not unrealistic to think the number of pre-orders will keep climbing. Musk recently tweeted that “if the trend continues,” Model 3 pre-orders could hit 500,000 within a few months or closer to production. (Source: Ibid.)
All of this, though, begs the question: how the heck is Tesla going to fulfill all those reservations, given its spotty record?
Tesla says it plans to increase production following higher-than-expected reservations. The electric vehicle maker also says that it has learned a lot from “Model S” and “Model X” production ramps, and that the company will use the lessons learned from production of those earlier models to get to higher volumes quicker. (Source: “Tesla Motors Inc VP: Model 3 Preorders ‘Approaching’ 400,000,” ValueWalk, April 15, 2016.)
The Bottom Line on Tesla Stock
Tesla has its work cut out for it if the company is to fulfill every single pre-order. If the electric vehicle maker can find a way to ramp up production beyond expectations, TSLA stock should find itself in a higher position over the next few years.