Tesla Model 3 Production Lags as Gigafactory Hits Delays

Shares of Tesla (NASDAQ: TSLA) fell as much as 8.9% on Thursday, in the aftermath of the company's third-quarter earnings release.

The mass market Model 3 is a make-or-break auto for the company, which until now has sold luxury cars. According to the company's Q3 report, it has only managed to build 260 Model 3 vehicles, well below the 1,500 that had been planned by September.

Less than four months later, however, it's clear that things haven't been running as smoothly as Tesla and its CEO Elon Musk would like. The company's goal to produce 5,000 Model 3s a week in December has been pushed back to the end of the first quarter. $304.08's average target is 1.16% above currents $300.59 stock price.

The US$35,000 Model 3 - which is half the cost of Tesla's previous models - could move Tesla from a luxury niche automaker into the mainstream.

"(1) What is happening to demand for the product? Indeed, the company's target of 2,000 Model 3 units being assembled in the third quarter was missed badly, with only 236 actually produced.

TESLA Inc's first attempt at high-volume production isn't going as well as it hoped - and the company has a record quarterly loss to show for it. "Discussion of future cash flow was characteristically vague but the CFO emphasized that the eventual Model 3 ramp will be accompanied by substantial operating cash flow".

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The company said it had US$3.53 billion in cash and cash-equivalents as of September 30, compared with US$3.04 billion at the end of the second quarter. Around that time, he adds, driverless cars should be gaining traction, and he expects Tesla to assume a leading position in this technology.

Tesla also admits that because "the Model 3 production process will be vastly more automated than the production process of Model S, Model X [.] bringing this level of automation online is simply challenging in the early stages of the ramp". Musk threw blame at a subcontractor who "really dropped the ball". He said Tesla wasn't aware of the extent of the issues until very recently, and the company's engineers had to scramble to rewrite software from scratch to compensate for the contractor's error.

Putting a ballpark figure on production capacity, Musk indicated somewhere in the neighborhood of "at least a couple hundred thousand vehicles per year, maybe more". Insiders have sold 50,992 shares of company stock valued at $17,390,505 over the last ninety days.

"We see additional capital needs to deliver Model Y by late 2019 (~$3-6bn Gigafactory/assembly plant) in addition to the cash needed to expand its dealerships and charging stations". A lot of outside companies get into such partnerships to avoid the 25% import tax that's levied on foreign carmakers, but Tesla seems to want to do this independently.

Energy generation and storage revenues soared from $23.3 million in the third quarter of 2016 to $317.5 million in the reported quarter.


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