For years, Tesla patiently explained that it wasn't "demand constrained." Rather, it was "production constrained." This led the company to do stuff like down-sell the Model X SUV before it launched in 2015. The concern was that Tesla would stoke demand that it couldn't satisfy.
Demand actually became a serious potential problem when the Model 3 was unveiled in 2016 and promptly racked up over 400,000 pre-orders. That problem has only recently moderated, as Tesla has discovered that that pre-orders and actual orders are different things â and true, configured vehicle order means that Tesla has to build the customer's car.
By the numbers, Tesla now has neither a demand nor production problem. It sold almost 250,000 vehicles in 2018 â 150,000 more than in 2017. Its production capacity is now more or less aligned with what everyone always figured it could produce at its California factory, something like 400,000-500,000 vehicles annually.
What is now happening is Tesla watchers are fretting about ongoing demand. Some bears think it could be tapped out for the Model 3. Musk disagrees. He thinks Tesla can sustainably sell over 700,000 a year, with a dip to 500,000 in the event of a recession.
Tesla believes it has solid demands moving forward. What the company doesn't want is crazy demand. And this is where the confusion comes in.
In the car business, demands is great, but demand in excess of what you can reliably satisfy is bad. Lacking any sort of steady market-share situation â Ford, Chevy, and RAM can expect to sell around three million pickups every year in the US, while the electric-car market is still forming â Tesla doesn't want to confront demands that overwhelms its production footprint.
Excess demand, without historic precedent, would be unstable. It could bring weak competitors into the space and cause an electric-car market crash in the future. What Tesla really wants is demand that can be met by its two existing production frameworks. That would be 100,000 units annually for Models S and X and in the near term 300,000-400,000 on Model 3.