As 2018 progresses, Model 3 production and deliveries will undoubtedly be one of the hottest items for Tesla (NASDAQ: TSLA) investors to watch -- and rightly so. The electric-car company is aiming for a ramp-up in Model 3 production to help it go from delivering just over 100,000 vehicles in 2017 to "hundreds of thousands" of vehicles in 2018.
But Tesla's Model X SUV is still relatively new and worth keeping a close eye on. In Tesla's most recent quarter, Model X deliveries hit a record high and were up 38% year over year. Can Model X deliveries climb higher again in the first quarter?
Model X. Image source: Tesla.
Model X: a look back
Launched in late 2015, the Model X was critical for Tesla at the time. The automaker had hoped the new SUV would ultimately double Tesla's sales volume as Model S sales growth tapered off.
This is almost exactly what happened. At the time of the Model X's launch, Model S annual sales were at about 50,000. In 2017, Tesla delivered about 55,000 Model S and 47,000 Model X.
Data source: Tesla quarterly SEC filings. Chart by author.
The Model X has been integral to both Tesla's continued sales growth and a surge in gross profit. Tesla's annual vehicle sales have risen from about 51,000 in 2015 to 101,000 in 2017. Meanwhile, Model X helped Tesla's annual gross profit surge from about $1 billion to $2.2 billion during this same period. This increase in gross profit has played a vital role in helping Tesla lay the groundwork for its important Model 3 launch and production ramp-up.
In 2018 and beyond, Tesla is hoping Model 3 will serve a similar role for its business as Model X did, but to an even greater degree. Investors, however, should still watch Model X deliveries. After all, the vehicle represents nearly half of Tesla's vehicle sales today.
Model X: a look ahead
Unless Tesla changes its 2018 production plans, investors shouldn't expect much growth in Model X deliveries during the year. Tesla management explicitly said in its fourth-quarter shareholder letter that it plans to keep Model S and X production at current levels.
"We expect Model S and Model X deliveries to be approximately 100,000 in total, constrained by the supply of cells with the old 18650 form factor," Tesla said. The move reflects Tesla's desire to focus on sales of higher-margin Model S and X as management optimizes their options mix, pushing the two vehicles' average selling prices higher.
A Model S and Model X. Image source: author.
So far, it looks like Tesla will be able to pull this off. Estimated delivery time frames for Model S and X orders placed today have been pushed all the way out until June -- and Tesla says this is simply because of higher demand, not slower production.
With this guidance and commentary in mind, investors should look for first-quarter Model X deliveries to be similar to the 13,000 Model X units Tesla delivered in Q4. But as Tesla optimizes its vehicles' options mix, investors should also look for Tesla's gross margin for combined Model S and X deliveries to start trending higher than the historical level of about 25% the two vehicles have achieved in the past.
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