Tesla Model 3 deliveries surge. Production rises too

Tesla Inc. reported a surge in production and delivery of its Model 3 electric sedan, giving fans of the car and believers in Chief Executive Elon Musk something to smile about.

The company said it delivered 55,840 Model 3s to customers in the third quarter, three times as many as in the previous quarter. Including the Model S sedan and Model X SUV, Tesla said it delivered 83,500 vehicles total.

The announcement “offers a bit of redemption to the Tesla faithful. It’s refreshing to see the company making headlines for producing cars, not controversies,” said Jeremy Acevedo, market analyst at Edmunds.

Investors reacted coolly to the news, sending Tesla shares slouching 3.1% to $301.02.

Morgan Stanley stock analyst Adam Jonas sent a note to investors after the news stating that “concerns remain on sustainability” for Tesla.

The company said it manufactured 53,239 Model 3s for the quarter. Those numbers fit in with recent company guidance of 50,000 to 55,000 but fell short of earlier forecasts.

Production averaged 4,095 Model 3s a week — below the 5,000-a-week guidance Musk gave analysts in May, and well below the goal Tesla stated in June of 6,000 a week by the end of August. (After a botched automation attempt at Tesla’s assembly plant in Fremont, Calif., the company erected a tent in the parking lot for automobile assembly. The company plans to put up an additional tent in which cars can be wrapped to protect them during delivery.)

Tesla and its supporters went to great lengths to boost deliveries as the quarter came to a close. Owners volunteered in droves at stores and service centers to help answer questions for customers, many of whom are new to electric cars. The company also offered incentives including free charging and referral program perks to entice purchases.

Even Bob Lutz, a critic of Tesla and a former General Motors vice chairman, acknowledged that “things are looking better” for the company. “Production of the Model 3 now appears stable at about 4,000 a week,” he said.

Yet short sellers remain committed to their negative thesis. “This is about as good as it gets” for Tesla, said Mark Spiegel of the Stanphyl Capital hedge fund, predicting that it won’t improve.

Musk, 47, has been candid on Twitter about Tesla still having kinks to work out in smoothly getting cars to customers. He has responded personally to several frustrated buyers to apologize for delays and said the company has left what he called “production hell,” only to end up in “delivery logistics hell.”

Although the third-quarter numbers look good, the strength of consumer demand for the Model 3 remains questionable. Musk bet the company on the idea that Model 3 would be a mass-market vehicle with sales of 400,000 a year or more. It was billed as a $35,000 car — $25,000 for California customers, factoring in a $7,500 federal tax credit and a $2,500 state tax credit.

But the Model 3s Tesla now makes range in price from $50,000 to $80,000. The company promises a lower-priced version sometime next year. Meanwhile, federal tax incentives to buy Tesla vehicles are phasing out through 2019.

Three months ago, Tesla’s second-quarter production and delivery announcement reported a backlog of “roughly” 420,000 Model 3 orders. The company did not address backlog at all in Tuesday’s report, which some short sellers see as a sign that demand may be dropping.

Thousands of Model 3s are being stored in lots around the country. The company has called the sites delivery hubs, but auto industry experts including Lutz wonder whether those cars need repairs before they can be delivered or even whether people want to buy them.

Tesla declined to discuss the issue.

Demand is definitely down in China due to trade friction. The company said Tuesday sales that are suffering in that key growth market after China imposed 40% tariffs on cars imported from the United States while reducing tariffs to 15% for imports from other countries.

“Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China,” Tesla said. “To address this issue, we are accelerating construction of our Shanghai factory, which we expect to be a capital efficient and rapid buildout, using many lessons learned from the Model 3 ramp in North America.”

Tesla has yet to tie up financing for its planned Shanghai factory.

Meanwhile, the automaker has a bit of a leadership change on the way. Days ago, Musk agreed to step down as chairman for at least three years as part of settling a fraud suit brought by the Securities and Exchange Commission. The charges stemmed from an Aug. 7 tweet in which Musk said he had secured funding to take the company private. Musk backpedaled on the going-private plan a few weeks later, and the SEC complaint said that neither he nor Tesla had ever secured funding for it.

Investors are now waiting for third-quarter financial results, to be released in early November. In its second-quarter production report, the company said to expect profit and positive cash flow in the third and fourth quarters.

On Sunday, in an email to employees, Musk said “we are very close to achieving profitability and proving the naysayers wrong.” Tuesday’s production report is silent on the matter.

Bloomberg was used in compiling this report.

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UPDATES:

2:15 p.m.: This article was updated with Tesla shares’ closing price.

12:30 p.m.: This article was updated throughout with Times staff reporting.

This article was originally published at 6:45 a.m.