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Tesla again delays Model 3 production target but says it's making 'major progress'

Tesla again delays Model 3 production target but says it's making 'major progress'
Tesla's Model 3, crucial to the company’s success, won’t hit full-scale production until the end of June, the company said. (Associated Press)

Production hell continues at Tesla.

The new Model 3, crucial to the company’s success, won’t hit full-scale production until the end of June, Tesla said Wednesday – nearly a year after the company began manufacturing the car in small numbers.

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Throughout last year, Tesla Chief Executive Elon Musk trumpeted a production level of 5,000 a week by December 2017. In November, he pushed that goal to the end of March 2018. Now that target won’t be hit until the end of June. The electric car maker said online Wednesday it expects to produce 2,500 a week by the end of March.

Only 1,550 Model 3s were delivered in 2017’s fourth quarter, the company said. That’s on top of the 220 Model 3s the company delivered in the third quarter, for a total of just 1,770 since the first deliveries in late July.

Serious problems turned up last summer at both the company’s Fremont, Calif., auto assembly plant and its “Gigafactory” battery plant in Nevada that put the company in what Musk called “production hell.”

Tesla is burning billions in cash as it struggles to achieve its vision of mass-market electric cars powered by Tesla-brand solar roofs through Tesla-brand home storage batteries.

But the roofs have yet to be produced beyond the research and development stage, and sales of the storage batteries are growing slowly.

It’s possible Tesla could pull everything together before cash runs out. Certainly the stock market thinks so. Shares have been under pressure lately but still give the company a market value of about $53 billion, analysts say. But a return to the financial markets for more billions in investment capital will be necessary. How long stock and bond investors will continue to pump sufficient funds into the company is an open question.

Along with the Model 3 news,Tesla said it had delivered 15,200 Model S and 13,120 Model X luxury cars in the fourth quarter, a 9% increase over third-quarter deliveries. Full-year 2017 vehicle deliveries reached 101,312, 33% higher than 2016.

Tesla’s announcement “isn’t much of a surprise” because of the automaker’s previously known Model 3 production problems, but if the bottlenecks continue they could cause Tesla serious problems, said Jessica Caldwell, executive director of industry analysis at Edmunds.com.

“Each time that happens the concern will grow” about Tesla’s ability to reach mass production with the Model 3, even though “I always felt like their production targets for this car would be a big learning curve for them,” Caldwell said.

She noted that if Tesla achieves its pushed-back goal of producing 5,000 Model 3 sedans a week by the end of the second quarter, that would equal 20,000 Model 3s per month, and Tesla just completed a three-month quarter in which it made 29,870 vehicles total, including its mainstay Model S sedan and Model X SUV.

Caldwell said that the Model 3 delay also “definitely doesn’t help” Tesla’s case with bankers and investors should it need to raise additional cash for its operations, but that Tesla was “still in a reasonable period of expectations” for eventually reaching its production goals.

Musk has a history of missed deadlines but often pulls through at the end. The Model S and Model X both suffered delays but were eventually brought to market to rave reviews. The Model 3, which the company plans to make in the hundreds of thousands and sell for $35,000 to $60,000, has raised the stakes.

“Musk has a long pattern of missing production and financial targets set not just years ahead but a few months ahead. When someone is wrong that often one must question either his honesty or his competence; personally, I question both,” said Mark Spiegel of Stanphyl Capital, who is betting against Tesla by short-selling its stock.

But Tesla short sellers have been battered as long-term investors mostly stay true.

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Several hundred thousand people have put $1,000 deposits down on the Model 3, according to Tesla. Most will now wait three months longer than they’ve waited so far. The company started taking the refundable deposits early in 2016.

Tesla has yet to detail the production problems at its manufacturing plants. The Wall Street Journal reported last year that the cars were being built partly by hand as the company struggled with its automated body-panel assembly line.

Without providing details, Musk acknowledged battery-pack assembly problems at the Gigafactory in a conference call with analysts in November. Musk is attempting to build better, cheaper batteries through advanced automation. But early versions of the Model 3 suffered battery quality problems, and it’s not clear whether those have been sufficiently resolved.

Tesla said Wednesday it’s making “major progress” addressing problems “with our production rate increasing significantly towards the end of the quarter.” During the last week of December, the company said, it made 793 Model 3s.

The company said it will “continue to focus on quality and efficiency rather than simply pushing the the highest possible production in the shortest period of time.”

On Tuesday, Musk tweeted a come-on for job candidates at the Gigafactory: “Come work at the biggest & most advanced factory on Earth! Located by a river near the beautiful Sierra Nevada mountains with wild horses roaming free.”

Many of the posted jobs seek specialists in factory automation. The new job listings no longer include a job requirement that was practically boilerplate on earlier job postings: “Desire to do the impossible with a positive and professional ‘never say die’ attitude.” The words “do the impossible” no longer appear.

Tesla’s announcement came after New York markets’ closing time. In after-hours trading, the stock was down 2.05% to $317.25.

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