Tesla Pushes Back Model 3 Production Timeline by Three Months

By · November 02, 2017

Tesla Model 3

Tesla said on Wednesday that production of its Model 3 small electric car would be delayed by about three months. The company said its goal of producing 5,000 Model 3s a week would likely occur at the end of March, rather than the end of November.

In Tesla’s Q3 earnings report yesterday, Tesla said: “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.”

This represents a critical change in expected output, because just a few months ago, Elon Musk, Tesla’s chief executive, said, “What people should absolutely have zero concern about—and I mean zero—is that Tesla will achieve a 10,000 unit production week by the end of next year.” Musk is longer providing a target date for the 10,000-a-week milestone.

On the news, Tesla’s stock price fell 8.9 percent on Thursday, its biggest drop in more than 16 months. “Tesla’s cash burn is astounding, and time is ticking,” said Salim Morsy, an electric-car analyst at Bloomberg New Energy Finance. “They have some pretty urgent things to deal with, and we just don’t have any visibility right now.”

Previous reports of a production bottleneck focused on the company’s California assembly plant. But in the earnings call yesterday, executives said the problem related to Tesla’s Nevada-based battery factory—its so-called Gigafactory.

With as many as 500,000 pre-orders for the Tesla Model 3, the company is under intense pressure to rapidly ramp up production. The Model 3—which provides 220 miles of driving range and sells for $35,000—has been marketed as a game-changing affordable long-range electric car for the masses.

It's All About the Batteries

A shortage in batteries is concerning because battery production is thought to be a core competency for Tesla. “The primary production constraint really, by far, is in battery module assembly,” Musk said yesterday. He indicated that manufacturing software had to be recreated “from scratch,” and that the company had to “redo many of the mechanical and electrical elements.”

“We dropped the ball,” Musk said, “and did not realize what was dropped until quite recently.” Nonetheless, Musk said he was confident that throughput will increase substantially in upcoming weeks, even surpassing previous expectations.

Beyond the battery production challenges, there are also reports of the following problems:

  • Employees with early Model 3s have been stranded after their car broke down
  • At least one supplier company has not received receive production approval for tooling
  • A supplier last week reported that Tesla reduced its order for Model 3 parts by 40 percent

“The company has a track record of missing targets,” said CFRA analyst Efraim Levy. “You can be off, which Elon has been often in terms of his stretched targets, but it would be a little bit more worrisome if he couldn’t meet the next objective on time.” The key upcoming objectives are producing 5,000 Model 3s a week by March 2018 and increasing output to 10,000 vehicles per week before the end of 2018.

Approximately 300 Model 3s have been to delivered to customers so far. Tesla said that customers who now order a Model 3 will wait up to 18 months for their vehicle.

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