Why Tesla’s promise to deliver 500,000 electric cars in 2020 isn’t unrealistic

Tesla released its 2019 financial results Wednesday, which means it’s time for some ambitious goal setting. The Silicon Valley automaker said it expects to “comfortably exceed” 500,000 deliveries in 2020. That’s a big step up from 2019’s total, but given the progress Tesla has made over the past few years, as well as the production capacity it’s working with, that goal should be achievable.

Tesla has been steadily ramping up production since the launch of the Model 3 in 2017. The automaker said it delivered 367,500 cars in 2019 — 50 percent more than the previous year. To reach 500,000 units, Tesla needs to build 132,500 more cars in 2020 than it did in 2019 — an increase of 36 percent. So Tesla doesn’t need as big an increase for 2020 as it already achieved in 2019. Tesla also has significant untapped production capacity.

Factory upgrades

Tesla’s main factory in Fremont, California, was able to build 500,000 cars a year back when it was a General Motors/Toyota joint venture making Toyota Corollas. Tesla’s challenge since buying the factory has been unlocking that potential to build its own electric cars. In its 2019 financial results, Tesla said the Fremont factory now has a production capacity of 400,000 cars per year. Upgrades scheduled to finish in mid-2020 will increase capacity for the Model 3 and upcoming Model Y to 500,000 units per year, according to Tesla.

That doesn’t even include the Model S and Model X, which are still being built in Fremont, or production capacity from Tesla’s recently opened Shanghai factory. That factory began delivering cars in late 2019, and could build as many as 500,000 cars a year on its own at full capacity, Tesla previously said. However, that likely won’t happen in 2020, as it is predicated on a yet-to-be-constructed expansion for the Model Y.

Model Y on the way

Speaking of the Model Y, the launch of that vehicle should ensure that demand remains strong as Tesla works to increase production. While other automakers have struggled to overcome buyer concerns about electric cars, Tesla has captured the imagination of the buying public. Hundreds of thousands of people made reservations for the Model 3 without even seeing the car in person, and the Model Y could dethrone it as Tesla’s bestseller.

The Model Y, which Tesla said will launch ahead of schedule in early 2020, cashes in on the crossover trend. Just as more buyers are choosing a Honda CR-V over an Accord, the crossover body style could make the Model Y more popular than the Model 3. Building the Model 3 has also taught Tesla how to build cars in larger volumes, so the ramping up of Model Y production should go more smoothly — and quickly. The fact that the Model Y shares a lot with the Model 3 (it’s basically a Model 3 with different bodywork) should make getting it into production easier.

If Tesla can achieve its goal of delivering 500,000 cars in 2020, the automaker will still be a relatively small player. Mainstream automakers like Ford, General Motors, and Toyota deliver millions of vehicles in the U.S. alone every year. But that nice, round half million figure will help prove Tesla’s staying power, making it the first successful new volume automaker in the U.S. in almost a century. Tesla also needs to keep growing in order to fend off challenges from startups looking to emulate its success, as well as established automakers, which are finally getting serious about electric cars.

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