Tesla’s Gigafactory 3 Model 3 output gets conservative estimate from Morgan Stanley

Tesla (NASDAQ:TSLA) and its upcoming Gigafactory 3-powered Model 3 push in China recently received a vote of support from Morgan Stanley, which adjusted its estimates for the facility’s start of operations. In a note published on Wednesday, Morgan Stanley analyst Adam Jonas stated that Tesla is poised to be China’s “leading luxury EV player,” though he quoted some curiously conservative estimates for local Model 3 production in the country. 

Jonas noted that Morgan Stanley’s team had just returned from visiting Chinese suppliers, allowing them to gather “fresh feedback” on Tesla’s plans. Among these is the start of Gigafactory 3’s operations, which Jonas admits will likely be faster than what Morgan Stanley initially anticipated. “Our China team just returned from a visit of local Chinese suppliers with some fresh feedback on Tesla’s progress with its currently under-construction Gigafactory 3 in Shanghai. If they’re right, Tesla may be able to ramp China production faster than we have currently anticipated in our model,” Jonas wrote.

Morgan Stanley currently has an “Equal-Weight” rating and a price target of $230 for TSLA shares. 

The analyst added that Model 3 production in Gigafactory 3 could start as early as November this year. By 2020, Morgan Stanley expects Tesla to produce 35,000 to 40,000 Model 3 in Gigafactory 3, ramping to 60,000 units per year in 2021. Over the next five years, the analysts noted that Tesla would likely lead the country in the luxury electric car market. 

While it is notable that Jonas has admitted to Gigafactory 3’s potential to start operations sooner than expected, his expectations for the facility’s Model 3 production rate seems strangely low. At an expected run-rate of 35,000 to 40,000 vehicles per year in 2020, after all, Morgan Stanley is estimating Gigafactory 3 to have an output of only 673-769 Model 3 per week. That’s less than the initial output of Tesla’s sprung structure-based GA4 Model 3 line in Fremont last year. 

For 2021, Jonas’ 60,000 per year estimate translates to around 1,150 Model 3 per week. With this estimate, Morgan Stanley seems to be suggesting that after over a year in operations, Gigafactory 3 will only be producing a fraction of Fremont’s weekly Model 3 manufacturing output. Considering China’s large EV market and the sheer scale of Gigafactory 3’s operations, this estimate seems curiously low. 

Contrary to Morgan Stanley’s estimates, reports from local Chinese media have pointed to Gigafactory 3 reaching a higher output in 2020. Following a visit to the Gigafactory 3 complex in Shanghai, Ma Chunlei, Deputy Secretary-General of Shanghai Municipal People’s Government and Director of Shanghai Development and Reform Commission, noted that the initial capacity of Tesla’s facility would be around 150,000 units per year or around 3,000 vehicles per week once the facility enters volume production. Other reports from China also hint at Model 3 production starting as early as September this year, barring unexpected delays. 

As of writing, TSLA stock is trading +1.85% at $257.04 per share. 

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.