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Tesla says full-speed production of Model 3 won't come for months, as it reports a big loss

For months, Tesla forecast a production rate of 5,000 Model 3 electric sedans a week by the end of this December.

Never mind.

The company said Wednesday that milestone is being kicked ahead an additional three months, to the end of the first quarter of 2018.

Tesla is facing serious problems not only at its Fremont, Calif., assembly plant, but also at the Gigafactory, the battery plant in Nevada that supplies the battery packs that drive the Model 3.

How serious? In “The Inferno,” Dante described nine levels of hell. In a call with analysts Wednesday, Tesla Chief Executive Elon Musk said “production hell” at the Gigafactory reached the ninth level several weeks ago, and is at “level eight” at present.

“Now I can see a clear path to sunshine,” Musk said. “I feel optimistic right now.”

Software from a supplier, which controls part of a battery module assembly process, had to be totally rewritten by Tesla, Musk said. Musk literally camped out on the Gigafactory roof while supervising the fix, complete with a campfire and marshmallows. He said he didn’t want to waste precious time commuting to and from a hotel.

Tesla buried the production-delay news in an investor letter it posted online after the New York stock markets closed. Also buried: a massive loss of $671.1 million in the third quarter, bringing its loss through the first nine months of 2017 to $1.66 billion.

Sales in the quarter were up 7%, to $2.98 billion.

Thousands of Model 3s were supposed to have been sold by now. So far, the company has reported that only 260 have been produced. Reports that many of those cars were returned to fix battery problems were not disputed by Tesla.

Tesla’s stock closed Wednesday at $321.08, down 3.15%, and had lost an additional 1.5% in after-hours trading by the time the earnings call ended.

The Model 3 is considered crucial to Tesla’s future. Growth is slow for its luxury Model S and Model X, which the company says will reach combined sales of 100,000 vehicles by the end of the year.

Musk had forecast that Model 3s would be manufactured at a rate of 5,000 a week by the end of December and that the company would make a total of more than 500,000 cars by the end of 2018.

On Wednesday, Tesla conceded the 5,000-a-week rate will not be met for months and that the company will need to clarify its forecasts for 2018. Musk told analysts that “thousands” of Model 3s a week will be in production by the end of December, but said he couldn’t be more specific.

Tesla has promised to best competing automakers with dramatic advances in factory automation, introduced with Silicon Valley-style speed. But it said Wednesday that “bringing this level of automation online is simply challenging in the early stages of the ramp.”

“We continue to make progress resolving early bottlenecks,” the company said. “There remain no fundamental problems with our supply chain or any of our production processes.”

Michelle Krebs, an analyst at Autotrader, said, “Tesla is learning what traditional automakers have long known – mass vehicle assembly is complicated and expensive.”

Musk sought to underline Tesla’s progress in the face of bad news. The company has delivered more than 250,000 cars since its founding, up from 2,500 just five years ago, he said.

“For the skeptics out there, which one of you would have predicted Tesla would go from 2,500 deliveries to 250,000 now?” Musk said. He added that a delay of several months in Model 3 production will prove “immaterial.”

Some analysts — who have seen Tesla’s stock rise more than 75% over the last year — were willing to give him the benefit of the doubt.

The delay “is understandable given the complexity,” said John Murphy, stock analyst at Bank of America.

“We don't think Tesla has derailed, instead it is just delayed,” said Efraim Levy, stock analyst at CFRA. The third quarter “was not a make or break period, in our view.” Still, he reiterated his sell recommendation on the stock.

Tesla said the number of would-be Model 3 owners who have put down $1,000 refundable deposits had grown beyond the 400,000 the company announced over the summer. But he offered no new number.

Jessica Caldwell, an industry analyst at Edmunds, doesn’t see the latest news causing problems among the Tesla faithful.

"Car buyers have always looked at Tesla through rose-colored glasses,” she said. “Tesla has managed to build a unique mystique around their brand that consumers want to be a part of, so these production issues likely won't ruffle too many feathers among the company's loyal buyer base."

Asked about plans to build a new assembly plant in China, Musk said he expects production to begin within three years, serving the China market and perhaps other Asian countries. The plant will build the Model 3 and the upcoming Model Y compact SUV, he said.

russ.mitchell@latimes.com

Twitter: @russ1mitchell


UPDATES:

Nov. 2, 7:55 a.m.: This article was updated to correct the number of deposits from potential Model 3 customers.

4:50 p.m.: This article was updated with more discussion of Tesla’s production problems and analyst comments.

2:30 p.m.: This article has been updated with additional details from Tesla’s letter to investors.

This article was originally published at 2:15 p.m.

An earlier version of this story said 4,000 people had placed deposits on Model 3 vehicles as of this summer. It was 400,000.
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