• Tesla temporarily suspended production of the Model 3 late last month.
• We were expecting temporary Model 3 production stoppage later this year for factory retooling, but stoppages are already happening.
• We’re expecting 2,000 Model 3s per week at the end of March, slightly below company guidance, but in line with Street estimates.
• This does not change our expectation of 168,400 Model 3 in 2018, essentially in line with the Street.
• We believe these production stoppages for retooling will continue through 2019, at which point we expect production variance to be infrequent and based on regular maintenance rather than retooling. there will always be some shutdowns.

We expect Model 3 production to be tracking essentially in line with Street estimates. Tesla will likely report production numbers, including Model 3, on Monday, April 2nd or Tuesday the 3rd. The company had previously guided Model 3 production to exit the March quarter at 2,500 vehicles per week. We expect Tesla will report Model 3 production below the 2,500 per week target and closer to 2,000 week, which is essentially in line with the Street. We believe this production trajectory maps to the Street’s June quarter expectation of 30,000 Model 3s.

Retooling roadmap. Tesla recently confirmed that Model 3 production lines were temporarily suspended late last month between February 20th and 24th. A spokesman told Bloomberg, “Our Model 3 production plan includes periods of planned downtime in both Fremont and Gigafactory 1. These periods are used to improve automation and systematically address bottlenecks in order to increase production rates. This is not unusual and is in fact common in production ramps like this.” After their last earnings report, we noted that the production ramp will not be linear but will be punctuated by periodic stoppages for factory retooling, followed by increased output. We believe the reason for this stoppage was to upgrade production equipment to improve efficiency. We expect these stoppages for upgrade purposes to continue through 2019. We believe that until Tesla reaches 10,000 Model 3s per week, which we are expecting mid-2019, these production stoppages for retooling will be a somewhat frequent occurrence.