Tesla Model 3 production target pushed back, despite progress

Tesla Model 3 delays impact share prices

Tesla Inc announced it will likely be able to produce about 2,500 Tesla Model 3 sedans per week by the end of the first quarter, disappointing investors who expected the Palo Alto-based company to build 5,000 cars per week.

In the fourth quarter of 2017, Tesla delivered 1,550 Model 3 sedans, falling well short of Wall Street analysts who had expected 4,100 Model 3 sedans to be produced in Q4, according to financial data and analytics firm FactSet.

Tesla says manufacturing challenges, including a redesign of its battery module assembly line, slowed the rollout of the electric vehicle.

The company claims it has since made “major progress” in overcoming production issues and on Wednesday, Tesla said its production rate had risen significantly despite the delays.

“In the last seven working days of the quarter, we made 793 Model 3s, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3s per week,” the company said in a statement.

According to a report by Reuters, Tesla says it plans to reach its goal of 5,000 vehicles per week by the end of the second quarter of 2018.

Tesla shares, which fell by 2 per cent in after-market trading, were pressured by the delay but are still trading at 46 per cent higher than this time last year.

The Model 3 is critical to the success of Tesla.  Starting at $35,000, it is the most affordable vehicle in the company’s fleet and it could transform the automaker into a mass producer of electric vehicles.

To date, Tesla has been a money losing company and is now facing a high cash burn and these production delays could mean some reservation-holders will cancel their orders.

“The further delay to (production volume) will leave analysts and investors focused on the implications for cash as we head through the first half of the year,” Evercore analyst George Galliers told Reuters.

In the third quarter of 2017, Tesla’s capital expenditures amounted to $1.1 billion and, in November, the company said its Q4 capex would also be about $1.1 billion.

Joseph Spak, RBC Capital Markets analyst, told Reuters in a note that he did not believe that Tesla will have to do a capital raise.

“We have them hovering about $1 billion in cash … They don’t have a ton of wiggle room though in our view,” Spak said.

Critics warn that Model 3 delays could negatively impact demand for the sedan as well as the company’s revenue stream and compromise Tesla’s ability to raise money in the future.

In the fourth quarter, Tesla all but met analysts expectations of deliveries of about 30,000 vehicles.  The company says it delivered 29,870 vehicles in Q4, including 15,200 Model S and 13,120 Model X cars.