Tesla still in ‘manufacturing hell’ for Model 3 sedan going into ‘make-or-break’ year?

Tesla’s ramp-up of production for the entry-level Model 3 sedan may be going more slowly than expected.

The company will produce only 5,000 of the vehicles in the fourth quarter, according to a new projection.

Meanwhile, another new report suggested that 2018 — and particularly Model 3 production during the coming year — will test the company’s leading position in the electric car world and play a strong role in whether investors keep putting money into the firm.

The Model 3, which at a starting price of $35,000 is intended to bring the Palo Alto electric car company into the mainstream auto market, has been plagued by delay. CEO Elon Musk in November confessed to analysts that the car’s production was some three months behind schedule.

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Now, boutique investment bank KeyBanc Capital Markets is predicting fourth-quarter Model 3 production will amount to a paltry one-third of the bank’s earlier prediction of 15,000 vehicles produced in the period, Reuters reported Dec. 27.

“The numbers indicate that the electric carmaker may still not be out of its self-described ‘manufacturing hell’ for the production of the … sedan,” according to Reuters.

Tesla did not immediately respond to a request for comment on the accuracy of KeyBanc’s prediction, or provide actual production numbers.

Musk, in July, had said more than half a million would-be Model 3 owners had made reservations, and the company would “go through at least six months of manufacturing hell,” Reuters reported at the time.

KeyBanc said it talked to people at 18 U.S. Tesla stores, forcing the bank to revise its expected fourth-quarter Model 3 production estimate.

“We talked to stores in California doing as many as a dozen per week with around 10 being the average, and we estimate stores outside of California were doing something closer to half a dozen per week,” KeyBanc said in a note, according to Reuters.

Tesla, which has suffered delays in production of every model so far, had fallen far short of its third-quarter Model 3 production target, making just 260 instead of a planned 1,500, citing “production bottlenecks.”

In November, Musk admitted that it would take a likely three extra months for the firm to start producing 5,000 Model 3s per week. The company would hit that level late in the first quarter, rather than in December, Musk said.

The Model 3 is crucial to Tesla, and 2018 may be a “make-or-break” year for the company, USA Today suggested Dec. 27.

“Speeding the rollout of the mass-market Model 3 is essential to Tesla’s financial health after the company lost several million dollars per day in the third quarter in its rush to begin manufacturing,” according to the newspaper.

Ugly numbers for Model 3 deliveries could start squeezing off the cash flow for Tesla, Autotrader analyst Michelle Krebs told USA Today.

“Is this the year investors will say, ‘Enough’s enough,’ or will they continue to fund Tesla?” Krebs said. “That’s the big question. I suspect investors would continue funding them if they see progress on the Model 3.”

 

Photo:  Tesla CEO Elon Musk in 2015 (AP Photo/Marcio Jose Sanchez, File)

 

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  • rxlawdude

    It’s pretty hilarious to see the short-sellers panicking. The M3 is “late?” Um, the original target date of the M3 release was at least six months later than when it happened.

    Bet against Tesla at your own fortune’s peril.

    • SeeMoHigher

      So the gaping chasm of cash usage and deteriorating margins on S/X are not an issue? I am completely uninterested in orignal dates. Musk said 100-200k Model 3’s delivered by the end of 2017. He was still saying 5000/week by end of 2017 as late as August. He does indeed prevaricate and does so quite regularly.

      But who cares?

      I can understand that you and the believers were all fooled. Even the sell-side analysts drank the Kool-Aide. As late as end-of-Oct 2016, the collective Wall Street TSLA advocates (19 of them all told) projected a positive non-GAAP EPS averaging $1.60/share for FY’17. Now they’re saying about ($8.50)/share loss: that’s closing on $2B of “oops”. It’s going to be worse, BTW, and 2018 shows no end in sight for cash consumption.

      The question isn’t what part of Musk’s pronouncements were right, wrong, early or late. It’s how the company will finance their next tranche of expenditures, and how expensive that will be. Whether or not 2018 will be a “break” year is anyone’s guess — they always seem to find willing contributors — but it will definitely not be a “make”, unless “making” gigantic negative returns is what’s implied.

      • rxlawdude

        You do realize the cash burn is investing in the capabilities to produce M3s, the semi, Roadster 2.0, etc?

        By all means, keep your cash in GM or Ford.

        • SeeMoHigher

          You do realize that the Tesla Operation consumes cash in excess of product revenues just to pay salaries, keep the lights on and pay suppliers before one dime of “capabilities” in CapEx is spent? Even if you were to zero out R&D?

          By all means, remain ignorant of how to read Cash Flow statments.

          • owlafaye

            I grant you; Elon Musk underestimated how much cash would be required to develop a highly popular product that appealed to customers world wide.

            But thats what it is…a highly popular product that appeals to the world wide automotive culture. Savvy investors are jumping on every day. Did you miss the bus?

        • owlafaye

          Laughter…right on…

      • owlafaye

        Tesla doesn’t seem to have ever had a problem getting backers. Why do you want him to fail? Put down the Cheetos, get off the couch and get a job.

  • The issue is not that he is way behind. It’s that he STILL seems to have no understanding of how difficult high-volume manufacturing is. It’s a fundamentally different beast than making single units (e.g. rockets), where you can measure a part carefully after it is fabricated. So his turnaround plan is likely to be a fantasy (whatever the plan is).
    He needs to face up to having made a MAJOR mistake when he skipped some steps in the original manufacturing ramp-up.
    He is probably also making another major mistake at present: adding new machines to the manufacturing process, before he has the existing ones working perfectly. This seems like a logical approach, but it does not work. For one thing, it diverts his key resource, which right now is manufacturing engineers. I blogged about this several months ago. https://art2science.org/2017/10/10/continuing-problems-with-tesla-3-musk-doesnt-understand-manufacturing/

    • SeeMoHigher

      Agreed, Art. Skipping PPAP, for example, is a near-fatal error to be sure. And to automate before processes are groomed and validated could indeed be a death blow.

      • owlafaye

        What section of the plant do you guys sweep everyday?

    • owlafaye

      I would like to think it isn’t a “major” mistake but rather a venture into improving manufacturing ramp-up. I am sure there is a lot there that refutes your assumption that it was a “major mistake”. Your pessimism places you further from the issue than an optimist. Of course, from the very beginning, naysayers blabbed about lots of other foolishness.

      Get out of your short position and never bet against Elon Musk again.

  • Karl Rowley

    How’s that Mars mission coming along?

  • owlafaye

    I am amazed that people don’t see the stupendous rate of advancment at Tesla. Do you really think this will become a failed venture? It isn’t the production numbers in the moment, it is the fact that Tesla is producing and the numbers increase every day. These production problems are endemic in the auto industry. Tesla will solve them just like Ford, GM etc. solve them.

    Do you want an optimist running the company, or a pesimist?

 
 
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