Science

Tesla postponing mass production of Model 3 sedan

Tesla postponing mass production of Model 3 sedan

Musk goes on the defensive.

Which, it could face heavy new demands for cash given the delays with the Model 3 and plans for new vehicles.

Watch Tesla's stock price move in real time here. The red ink was overshadowed by the three-month delay in Model 3 production and massive cash burn.

Tesla was set to open over 6 percent below the previous close on Thursday after it alarmed investors with its biggest quarterly loss yet and a hold-up in production targets for its Model 3 vehicle by about 3 months.

But is this just a "flash in the pan", as Tesla executives insisted during a Wednesday evening conference call, a temporary setback that will soon be overcome, or is it the sort of critical failure that could have a much longer impact on Tesla's health? He projects that Tesla will become profitable in the third quarter of 2020.

Musk tried to put a positive spin on the future by looking back at the past. He expects margins to expand next year.

However, in the third quarter, the Palo Alto, California-based company made just 260 Model 3 sedans, due to "production bottlenecks", it said. Vetr upgraded shares of Tesla from a "strong sell" rating to a "sell" rating and set a $320.97 target price on the stock in a research note on Friday, October 13th.

"I was really depressed about 3 or 4 weeks ago". "In the grand scheme of things", Musk said, "this is a relatively small shift".

That's more troubling than it might seem.

It's Model 3 that analysts see as the main stumbling block in front of the electric vehicle maker.

The stock is up 40.51% this year.

The software problem may be resolved, but the CEO and his top management team revealed that there remain scores of other bottlenecks to break, primarily on the first half of the new line. Now, that production rate is to be expected by "late Q1 2018" - meaning early spring.

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". Without that the carmaker won't be able to come close to the 500,000 annual production target.

It seems that delivery estimates have been less impacted for reservation holders who already had later dates, whether because they are on the east coast, outside the United States, or they are not current Tesla owners. In September, reports surfaced that Tesla would build its own custom AI chips, snubbing Nvidia for a partnership with AMD.

A number of other institutional investors and hedge funds have also recently bought and sold shares of TSLA. "Elon Musk needs to stop over promising and under delivering".

"We continue to make progress resolving early bottlenecks, [but] the nature of manufacturing challenges during a ramp such as this makes it hard to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear". Importantly, we believe Tesla has the talent to fix its manufacturing issues, and should hit its targets of several thousand Model 3s per week by [the end of 2017] and about 5k per week by the end of [the first quarter of 2018].


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