Tesla Shares Details of Model 3 Production Woes in Q3 Earnings Update

Randall Padilla
November 8, 2017

After releasing third-quarter earnings in 2016, Musk told investors that Tesla would not need to raise more capital to launch the Model 3; however, the company received $1.2 billion from a share and convertible debt offering in March, and raised another $1.8 billion in a bond sale in August for Model 3 production.

"We're doing this call from the Gigafactory bc that's where the production constraint is for the Model 3", Musk said.

"This is where a systems integration subcontractor really dropped the ball, and we did not realize the ball was dropped until recently, and we had to rewrite the software from scratch", Musk said.

"It is harder to supplement with manual labor than the [Model] S or X because it is a very high degree of automation", Musk said.

Musk said Tesla will be able to claw back some of the money it paid the subcontractor, but not enough to make up for losses resulting from the problem. Tesla notes that its manufacturing process is more automated than most carmakers, and therefore takes longer to established. "It's really the only was to make the cars affordable in China...but it's three years out", Musk said.

Investors had sensed something was awry a month earlier, when Tesla said it had only made 260 of the Model 3 last quarter, well below the nearly 2,000 it had forecasted; some reports said the bottleneck was due to the carmaker assembling the vehicle by hand.

"W$3 e see greater pressure on TSLA to meet its one-quarter delayed weekly run-rate of 5,000 Model 3 vehicles produced per week by the end of Q1", said CFRA analyst Efraim Levy in an email to CNBC.

The letter highlights battery module assembly at Gigafactory 1 as the single bottleneck that's holding up the process today.

Tesla burned through $1.4 billion dollars in the third quarter as it attempted to ramp up production of its affordable Model 3 electric sedan. The company would still be required to pay 25 percent import tariffs on cars sold in China, but a Shanghai factory could curry favor with the Chinese government and would open up China's supply chain to the company.

The changes to forecasts of how many Model 3 sedans will be built are "likely to result in a significant reduction in production expectations" and increase concerns about about Tesla's ability to generate cash, Ryan Brinkman, a JPMorgan Chase & Co. analyst, wrote Thursday.

Musk also criticized recent news articles reporting that Tesla had fired hundreds of workers, which anonymous sources suggested were union-leaning. Overall, the company hopes Model S and Model X deliveries will reach about 100,000 for the year. They even discuss the underside of the vehicle. He recalled being on the assembly line at 2 a.m. on a Sunday to help diagnose robot calibration issues and said work was being done seven days a week to solve the problems vexing the gigafactory.

Other reports by AllAboutTopnews

Discuss This Article

FOLLOW OUR NEWSPAPER