Tesla stalls on Model 3 production bottlenecks

Tesla Inc. struggled to produce i ts cheapest model shortly after the car debuted, setting back chief executive Elon Musk’s mission to reach mainstream consumers.

The automaker built only 260 Model 3s during the quarter ended in September, less than a fifth of its 1,500- unit forecast. Output of the sedan that starts at US$ 35,000 — roughly half the cost of the least expensive Model S — was lower than expected because of unspecified “bottlenecks,” according to the company.

Musk has sparked enthusiasm about electric cars and has automakers including Volkswagen AG, General Motors Co. and Daimler AG lining up to compete. But what Tesla hasn’t done is prove itself as a mass manufacturer. The slow start for Model 3, designed for easier assembly, reignites concern that the company will struggle to reach the lofty production targets set by its CEO.

“I would be surprised if anyone was surprised that they came up short,” said Sam Korus at Ark Investment Management in New York, which holds Tesla shares. “When Musk gives a prediction, you know it’s an extraordinarily ambitious goal.”

Tesla fell 2.5 per cent in early New York trading, before recovering. The stock is up 56 per cent this year.

Tesla produced 25,336 vehicles in the third quarter, down slightly from the three months ended in June. Musk warned after handing over the keys to the first Model 3 owners in July that it would be “hell” ramping up output of the car, which racked up almost half- a- million reservations as of early August.

While Model 3 results were disappointing, sales of the Model S sedan and Model X SUV climbed to a quarterly record. Deliveries in the second half of the year will exceed the first half by several thousand vehicles, according to Tesla.

“They’re likely three or four weeks behind on the Model 3 ramp,” Ben Kallo, an analyst at Robert W. Baird & Co., said by phone. “Bears will make this an issue, but this was a very good quarter for Model S and X demand and deliveries.”

Musk has said that production of the Model 3 will grow exponentially and had tweeted Tesla would make roughly 100 of the cars in August and more than 1,500 in September. He projected the company would be able to build the sedan at a rate of 20,000 units per month by December.

“Elon’s never made a number, ever,” said Ross Gerber of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “Coming up short is what we expect of him.”

While Tesla r eported about 4,820 Model S and Model X were in transit to customers at the end of the quarter, it didn’t give a figure for the Model 3. In its statement, Tesla said there were no fundamental issues with the car or its supply chain and expressed confidence in fixing its issues.

Gerber said he has faith in Musk, who also runs Space Exploration Technologies Corp. “This guy has figured out how to land a rocket on a ship,” he said. “Whatever it is, he’ll get it sorted out.”