Tesla Inc.  (TSLA) first introduced the Model 3 just over two years ago.

After taking pre-orders, the Model 3 had garnered the interest (and $1,000 refundable deposits) from several hundred thousand customers within the first week.

In July 2017, the automaker began limited production and most recently was producing about 2,000 units per week at the end of the first quarter. Last week, it was reported that Tesla was producing 500 Model 3 units per day. Just this weekend, CEO Elon Musk announced a new $78,000 Performance edition of the Model 3, along with an all-wheel drive option.

When the company reported earnings on May 2, its shareholder letter stated there were more than 450,000 Model 3 reservations remaining.

We don't have an update on reservations, but we do know the estimated time for delivery of the Model 3 has fallen significantly. If you head over to Tesla.com and look to order the new vehicle, you can see the change. 

Previously, a long-range, rear-wheel drive Model 3 was under a 12 to 18 month delay, because production was so slow. That figure has dropped to a 4 to 6 months range.

Those who want the long-range battery and all-wheel drive engine option, or the Performance package will have to wait 6 to 9 months rather than 12 to 18 months. Customers looking to score a Model 3 with the standard battery will have to wait 6 to 12 months, but that is an improvement from prior wait time of 12 to 18 months.

Some perma-bears have tried to link the drop in delivery time with a severe drop in demand. That doesn't make a lot of sense, though. Let's look at two scenarios that explain the drop in demand:

  1. The wait time is falling significantly as Tesla has gone from producing 2,000 Model 3 units per week to possibly up to 3,500 per week. It's still aiming for 5,000 units per week by early July, which would put it on pace to produce 20,000 Model 3s per month.
  2. Tesla intentionally lied about its current reservation backlog just three weeks ago and actually has substantially lower demand for its Model 3 vehicle.

Which one seems like the more likely scenario? I'm going with Option No. 1 as well, as No. 2 has no data or proof to back it up. 

While the all-wheel drive option is seemingly being introduced earlier than expected, it possibly shows that production really is going better than expected. Here's an excerpt from Tesla's most recent 10-Q filing:

"After achieving the 5,000 per week production rate, we will begin offering new Mod el 3 options such as all-wheel drive and the base model with a standard-sized battery pack. At that point, we also intend to incorporate our cumulative experience to continue to increase output on our existing manufacturing lines beyond 5,000 vehicles per week, and then add incremental capacity in a capital-efficient manner to ultimately achieve a weekly production rate of 10,000 vehicles."

So what does it mean for the stock? Shares of Tesla are up about 3% Monday to $285. Anything that can fuel the bull case at this point is good news for the stock, particularly given the number of shorts in the name. Any sustained rally could get a short-squeeze going, but Tesla will need to get through the $300 level first. 

The automaker still has its issues -- cash burn, capital needs and profitability being the most glaring. But solving its "production hell" for the Model 3 is the first step for getting out of this hole. Bulls and bears would be wise to view Tesla's situation for what it is, rather than through the preconceived bias that many who follow the name tend to do. 

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.

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