Date
21 October 2018
Tesla’s heavily shorted shares sank after several analysts questioned whether Tesla would be able to sustain the Model 3 production momentum, which is crucial for the long-term financial health of the company. Photo: Reuters
Tesla’s heavily shorted shares sank after several analysts questioned whether Tesla would be able to sustain the Model 3 production momentum, which is crucial for the long-term financial health of the company. Photo: Reuters

Tesla shares plunge despite Model 3 production milestone

Tesla Inc. hit a long-elusive target of making 5,000 Model 3 vehicles per week, but failed to convince Wall Street that the electric carmaker could sustain that production pace, sending shares down 2.3 percent, Reuters reports.

Tesla met the target by running 24 hours a day for seven days, setting up a new production line inside a tent on the campus of its Fremont factory and pulling workers from other projects, according to the company and employees at the factory.

Tesla’s heavily shorted shares rose as much as 6.4 percent to US$364.78 in early trading on Monday, but sank after several analysts questioned whether Tesla would be able to sustain the Model 3 production momentum, which is crucial for the long-term financial health of the company.

“In the interim, we do not see this production rate as operationally or financially sustainable,” said CFRA analyst Efraim Levy. “However, over time, we expect the manufacturing rate to become sustainable and even rise.”

Levy cut CFRA’s rating on Tesla stock to “sell” from “hold”.

Tesla, which chief executive Elon Musk hailed on Sunday as having become a “real car company”, said it now expects to boost production to 6,000 Model 3 units per week by late August, signaling confidence about resolving technical and assembly issues that have plagued the company for months.

Tesla also reaffirmed a positive cash flow and profit forecast for the year and announced that Doug Field, senior vice president of engineering, was stepping down after five years with the company.

The company has been burning through cash to produce the Model 3. Problems with an over-reliance on automation, battery issues and other bottlenecks have potentially compromised Tesla’s position in the electric car market as a host of competitors prepare to launch rival vehicles.

While UBS analyst Colin Langan said there was some relief the company hit the Model 3 production target, he noted that second-quarter vehicle deliveries of 40,740 missed his expectation for 51,000 and the consensus estimate of 49,000.

He also questioned whether the company could keep up the faster production and its profit outlook.

“We’re very worried about quality and if you read the reports online there are significant quality issues. They still haven’t proven they can produce these profitably. The math is very challenging in getting to a sustained profit,” said Langan.

Model 3 production tripled to 28,578 in the company’s second quarter from the previous quarter, Tesla said.

The company said 11,166 Model 3 vehicles were in transit to customers at the end of the second quarter, and would be delivered early next quarter.

Reservations at the end of the second quarter stood at roughly 420,000. Tesla has delivered 28,386 Model 3 cars to date. Model 3 reservations totaled 450,000 at the end of the first quarter.

The company said it expects orders to grow faster than the production rate after it starts allowing potential customers to see and test drive Model 3s at local stores.

Despite originally touting the Model 3 as a US$35,000 vehicle, Tesla has yet to begin building that basic version and instead is currently building a higher-priced model as it tries to come out of “production hell”.

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CG

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