In Q3, Tesla surprised on the upside of gross margins and mentioned declining labor hours as production efficiency had increased.

“Labor hours per Model 3 decreased by more than 30% from Q2 to Q3, falling for the first time below the level for Model S and X. In Q4, we will focus even further on cost improvements while continuing to increase our production rate.”

Our data shows that labor hours at Fremont have continue to decline in Q4. Combined with reports of production stabilizing, and potentially increasing in the coming weeks, we believe this implies that production efficiency has continued to increase and should (at least partially) offset the decline in ASPs.

In Summary

We believe that Tesla’s performance this quarter has stabilized and company appears to be operating at similar levels to their breakout Q3 performance. We expect to see a ramp in delivery activity in the back half of the quarter, which is normal for Tesla, and will be required if they are to meet their guidance of delivering more vehicles in Q4 than Q3. Model 3 ASPs have been falling but should be offset by increased production efficiency, which we are seeing reflected in our data. All in all, we believe that Tesla is currently on track for another positive quarter; however, December is shaping up to be an important month for investors to watch for.

Alpha Hat (www.alphahat.com) provides institutional investors with real-time intelligence from alternative data. Alpha Hat releases a weekly Tesla report to clients. Please contact research@alphahat.com for more information.