Tesla, Inc. has been keeping its word on hitting Model 3 production targets and financial goals – at least compared to what happened with the delayed schedules of the luxury Model S and Model X launches in recent years.
CEO Elon Musk and other top executives yesterday broke the news during an investor shareholder call that its long-promised commitment to reach 5,000 Model 3 units rolling off the assembly line by the end of this year won’t be met. The company also reported that production costs have been heavy, with its largest quarterly loss ever - coming in at $619 million for the third quarter.
Musk had made similar failed promises on the Model S and Model X, which competitors have enjoyed as regulatory pressure mounts to build and sell more electric vehicles. The Model 3 has made for a much larger target, with production expected to shoot up from about 100,000 units this year to 500,000 vehicles next year based on Tesla’s claims.
Tesla said in its earnings call that Model 3 production has been slowed by changes being made with improvements at its Gigafactory. It will reach its goal of producing 5,000 of the vehicles per week by early 2018, rather than the end of 2017, the company said.
The $619 million loss compares to a $336 million loss in the previous quarter and a $21 million profit in Q3 2016. That’s coming from the huge investment needed for ramping up production of the Model 3 at its Fremont, Calif., assembly plant and its Nevada-based Gigafactory.
“While we continue to make significant progress each week in fixing Model 3 bottlenecks, the nature of manufacturing challenges during a ramp such as this makes it difficult to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear,” Tesla said. Related: Coal Prices Soar As Demand Heats Up
The bottlenecks go back to last month when Tesla revealed that it had only made 260 Model 3s since the car’s launch during the summer. The company initially predicted that it would produce 1,500 Model 3s in September.
Musk blamed “production hell” and “bottlenecks” in a recent Twitter post. Analyst reports said there was more to the story – that the production process was not working like it was supposed to and that Tesla was still relying on hand-made parts; inadequate communication with the company’s suppliers was another problem mentioned.
The company also reported a record $3 billion in quarterly revenue and delivery of about 26,000 vehicles. The Model S and Model X have been popular to lease by luxury vehicle owners, and those fascinated with the performance, tech toys, and zero emissions.
It hasn’t been enough to save Tesla’s stock value. It was last trading at about $296, plunging from a high of $385 on September 18.
Tesla’s battery partner, Panasonic, earlier this week said that production problems are being worked out at the Gigafactory in Nevada. Panasonic CEO Kazuhiro Tsuga said that delays to the automation of the battery pack production line meant some of it had to be completed manually.
It will soon be automated, meaning the number of vehicles to be produced will rise sharply, Tsuga said. He declined to comment on how his company sees the production schedule will be carried out compared to the original projection.
During the earnings call, Tesla backed away from its lofty goal of hitting production targets of 10,000 Model 3s per week. The company didn’t commit to when that goal will come back, or if it ever will. It’s been lowered to hitting the 5,000 per week goal, and will be reassessed at that time. Related: Trump’s China Trip To Reap Billions In Energy Deals
The former NUMMI plant in Fremont, where Tesla is building its electric cars, was previously jointly owned by General Motors and Toyota. The NUMMI plant averaged about 8,300 vehicles produced per week during its peak.
Tesla told shareholders that it may build a factory in China during 2019. Discussions have been underway with the national government to set up shop in one of its free trade zones to avoid the requirement of having to set up a joint venture with a Chinese automaker.
Tesla wants to protect its vehicle design intellectual property, and wants to maintain control over the production and marketing.
The auto industry has seen several electric car startups file for bankruptcy in recent years, highlighting the massive costs of becoming a vehicle manufacturer. Tesla has upped the ante greatly with its ambitious production targets for the Model 3, and soon after, the Model Y electric crossover.
By Jon LeSage for Oilprice.com
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