Tesla hits production goal for Model 3
DETROIT — Tesla Inc. made 5,031 lower-priced Model 3 electric cars during the last week of June, surpassing its often-missed goal of 5,000 per week. But the company still only managed to crank out an average of 2,198 per week for the quarter.
Tesla reported making 28,578 Model 3s from April through June, according to its quarterly production release on Monday.
The Model 3, which starts at $35,000, is the key to turning Tesla from a niche maker of expensive electric cars into a profitable, mass-market automaker. The company badly needs cash from the compact cars to deliver on Chief Executive Officer Elon Musk’s promise to post a net profit and positive cash flow in the third and fourth
quarters. The company has had only two profitable quarters in its 15-year history.
To hit the 5,000-per-week mark, Tesla had to erect a second Model 3 assembly line under a tent outside its Fremont, Calif., factory, and Musk had to spend nights in the plant working out bugs with automation and other problems.
The company now says it expects to hit 6,000 Model 3s per week by late August, with its Model 3 assembly line under the plant’s roof reaching 5,000 on its own.
“The last 12 months were some of the most difficult in Tesla’s history,” the company’s statement said. Hitting the 5,000 mark “was not easy but it was definitely worth it,” the statement said.
Tesla critics now wonder if the company can keep up the 5,000-per-week rate, and they question whether it can build high-quality vehicles underneath the heavy-duty tent on the site of what once was a joint-venture factory for General Motors and Toyota.
Dave Sullivan, manager of product analysis at the market research firm AutoPacific Inc. and a former manufacturing manager for Ford Motor Co., said reaching 5,000 cars per week won’t make Tesla profitable by itself. He predicted the company will have trouble sustaining the rate because parts suppliers will have difficulty keeping up and bottlenecks will develop in the body assembly and paint shops.
“I’m not saying it’s impossible for Tesla to hit 5,000-plus cars a week in production at some point,” said Karl Brauer, executive publisher at Kelley Blue Book. “But it’s taken a lot longer than it was supposed to.”
Tesla has not defined what constitutes “production.” For other automakers, “produced” means the moment a car exits the production line fully finished. But Musk, Tesla’s chief executive, used an unusual phrase in describing production numbers in an email to employees Sunday: “Not only did we factory gate 5000 Model 3’s, but we also achieved the S & X production target for a combined 7000 vehicle week!” his memo said, referring to Tesla’s Model S sedans and Model X SUVs.
Tesla didn’t respond Sunday to a question about what Musk meant by “factory gate.” Anton Wahlman, a short seller betting that Tesla stock will drop, wonders whether there is rework to be done on “factory gate” Model 3s.
The company said Monday that the number of unfulfilled
Model 3 vehicle reservations at the end of last quarter remained around 420,000, even though production has increased and Tesla already has delivered 28,386 of the cars.
CFRA Research analyst Efraim Levy lowered his rating on Tesla shares from “Hold” to “Sell,” saying he doesn’t see the production rate as “operationally or financially sustainable” in the short term. But over time he expects it to rise. Still, the stock is trading above his 12-month price target of $300, so he recommends selling it, he wrote Monday in a note to investors.
Shares of Tesla Inc. fell 2.3 percent Monday to close at $335.07.
Last summer, when the first Model 3s began rolling off the assembly line, Musk promised to build 5,000 per week by December and 10,000 per week in 2018. But he also warned at the time that Tesla was entering at least six months of “manufacturing hell.”
On Monday, the company said it delivered 18,440 Model 3s during the quarter. Some buyers have been holding out for their cars since March of 2016 when the company first started taking orders. Another 11,166 Model 3s are en route to be delivered to owners, the company said.
Currently the cheapest
Model 3 that can be ordered costs around $49,000, and they can run upwards of $70,000. The company hasn’t said when it will start producing the $35,000 version.
Tesla also said it delivered 10,930 Model S sedans and 11,370 Model X SUVs during the quarter.
Model 3 sales are critical to Tesla’s future. The company burned through more than $1 billion in cash in the first quarter. Wall Street investors are growing impatient with the losses.
Moody’s Investor Service downgraded Tesla’s debt into junk territory back in March, warning that Tesla won’t have cash to cover $3.7 billion for normal operations, capital expenses and debt that comes due early next year. Tesla said cash from Model 3 sales will pay the bills and drive profits.
Musk told investors on a first-quarter earnings conference call that the company relied too heavily on automation. It had to hire more people to work at the factory.
But regardless of those issues, Musk was in a celebratory mood Sunday.
“I think we just became a real car company,” he wrote in a note to employees.
Information for this article was contributed by Tom Krisher and Paul Wiseman of The Associated Press; and by Samantha Masunaga of the Los Angeles Times.