Could Tesla Build 1 Million Vehicles This Year?

Rewind just five years, and many people doubted whether electric-car maker Tesla (NASDAQ:TSLA) could ever even get to the point that it was building 500,000 vehicles per year, let alone achieve it by 2020. Yet now Tesla’s doing such a good job ramping up production that we’re already talking about when the automaker could be building one million vehicles annually, and it may be coming sooner than you think. In fact, the company could potentially pull this off as early as this year — one year after its annualized production crossed 500,000 for the first time.

Here’s a closer look at Tesla’s stunning progress with building out its electric-vehicle production capacity recently — and why the company could potentially double its vehicle production this year.

Tesla Model Y interior

Tesla Model Y. Image source: Tesla.

Expanding production capacity

Tesla’s vehicle production capacity has expanded by leaps and bounds over the last two years. Size, it turns out, has not been a limiting factor for Tesla. Indeed, it has arguably been an accelerant recently.

The automaker’s aggressive capacity expansion started kicking up a notch in 2019, when the company broke ground, built, and started producing cars in a new factory in Shanghai — all in less than 12 months. By the end of the year, a factory less than 12 months old had a production capacity of 150,000 vehicles, increasing Tesla’s production capacity by nearly a third. 

Vehicle production at Tesla's factory in California.

Tesla factory. Image source: The Motley Fool.

But Tesla’s capacity expansion really got aggressive in 2020, as Tesla’s newfound ability to generate positive cash flow seemed to inspire the company to take even bolder expansion bets. Throughout the year, Tesla installed enough new production lines and tooling to increase its production capacity by more than 60%. This came from a slight increase in production capacity at the company’s factory in Fremont, California and a tripling of its capacity at its new factory in Shanghai.

Of course, investors should note that production capacity doesn’t immediately translate to respective production levels. It takes time for production lines to ramp up to fully utilize installed tooling. Still, Tesla notably kicked off 2021 with production capacity for 1.05 million vehicles, setting the stage for some incredible growth.

It gets better in 2021

Of course, Tesla isn’t stopping at a production capacity of 1.05 million, particularly with deliveries more than doubling year over year for two quarters in a row. To capitalize on the growing demand for its vehicles, Tesla has two more new factories where it is building out even more capacity: one in Berlin, Germany, and another in Texas. Production is expected to start at both factories this year.

Considering this capacity buildout alongside the fact that Tesla has already produced about 387,000 vehicles during the first six months of 2021, it wouldn’t be surprising to see Tesla build close to one million vehicles this year. Even if production is closer to 900,000 by the end of the year, it’s highly likely Tesla will at least finish the year with an annualized production rate of one million vehicles on a run-rate basis.

All of this begs the question: With staggering growth like this, could we be underappreciating Tesla’s growth prospects for the next five years once again? Based on the stock’s pricey valuation, investors may be embracing the fact that that the company seems to be a growth machine better than they were five years ago. But it wouldn’t be surprising if Tesla continues to outperform expectations — particularly over the long haul.

How many new factories will Tesla build over the next five years?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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