Tesla hits Model 3 production target
Skepticism lingers that late-June burst can be sustained.
Tesla engineered a late-quarter production burst with the Model 3, the pivotal model in Elon Musk’s quest to put electric cars into the driveways of mainstream consumers. To disprove his doubters, he’ll need to make these manufacturing levels routine.
Output reached 5,031 Model 3s in the last week of the second quarter, exceeding a target that Tesla’s chief executive officer had said was crucial to generating cash and earning profit. About 20 percent of those cars came off a makeshift line that the company built last month underneath a tent outside its California assembly plant.
Musk sent an email Sunday to salute staff for achieving a goal to produce 5,000 Model 3s in the final week of June.
The progress he celebrated is critical to the carmaker being able to sustain itself financially while pursuing the 47-year-old’s mission to transition the world to battery-powered transportation.
“They’re ramping up production pretty dramatically now,” said Joe Fath, a fund manager for T. Rowe Price, Tesla’s second-largest shareholder behind only Musk. “They’ve got a lot of vehicles in transit on their way to the sales centers, so that sets them up for a really good third quarter.”
Tesla hasn’t earned an annual profit in its 15-year history. It has regularly had to go back to Wall Street to seek billions of dollars after burning through cash at rates that have alarmed some investors and credit ratings companies.
Fath, who’s based in Baltimore, said Musk hasn’t had trouble raising capital before and won’t if he chooses to do so now.
Proving these production rates can be sustained will be key to justifying a market capitalization that’s again surged past General Motors and made Tesla the most valuable U.S. automaker.
The skepticism that remains among some investors and analysts contributed to the shares falling 2.3 percent, reversing a gain of as much as 6.4 percent reached shortly after the start of regular trading.
“We do not see this production rate as operationally or financially sustainable,” said Efraim Levy, an analyst at CFRA Research, who cut his rating on the stock to sell.
Views of a “rosy future” for Tesla may have been priced into the shares before the company reported quarterly results, according to Joe Spak, an analyst with RBC Capital Markets, who rates the shares the equivalent of a hold.
Tesla reaffirmed its guidance for positive net income and cash flow in the third and fourth quarters, even though a weaker dollar and tariffs on vehicles and parts being sent back and forth between the U.S. and China may drag on results. It also forecast that it’ll be able to build 6,000 Model 3s a week by late August.