Tesla Reports New Setback for Model 3, With Output Lagging

Posted January 3, 2018 9:24 p.m. EST

Tesla’s first mass-market offering keeps encountering roadblocks.

The electric-car maker said Wednesday that production of the new vehicle, the Model 3, in the final quarter of 2017 was far behind what its chief executive, Elon Musk, forecast when it went into production six months ago.

Priced at $35,000, the Model 3 has been touted by Musk as an affordable, high-volume compact sedan that would enable Tesla to sell more than 500,000 cars a year starting in 2018.

In July, Musk predicted that Tesla would be able to make 20,000 Model 3s a month by December. But in the past three months, it has built only 2,425.

Overall, Tesla had the most productive year in its history, delivering 101,312 vehicles, a 33 percent increase from 2016. But production of the Model 3 was slowed by manufacturing glitches at Tesla’s giant battery plant in Nevada, known as the Gigafactory. The company has also said that welding processes and final assembly tasks at its car factory in Fremont, California, were moving more slowly than expected.

Of the Model 3s assembled in the fourth quarter, Tesla delivered 1,550 to customers, although many of the initial recipients were employees of the company.

“This is par for the course for Tesla and Elon Musk, whose history of stating goals and forecasts and not meeting them is pretty well established,” said Karl Brauer, a senior director at Kelley Blue Book, an automotive research company. “That the Model 3 is moving slowly isn’t a surprise. Most independent experts found the production rates he was forecasting were pretty unlikely.”

Tesla shares fell 2 percent in extended trading after the announcement.

In a statement, Tesla reported “major progress addressing Model 3 production bottlenecks,” adding that the production rate increased “significantly” toward the end of the quarter. In the last few days, it said, the company was nearing an assembly rate that would produce 1,000 Model 3s a week. That’s still well short of Musk’s forecast from last July, but well ahead of the pace in the third quarter, when just 260 Model 3s rolled off its assembly line.

In addition to the Model 3, Tesla also delivered 15,200 Model S sedans and 13,120 Model X sport-utility vehicles in the fourth quarter. It said overall deliveries were 27 percent higher than in the fourth quarter of 2016.

The company is counting on Model 3 sales to help it reach profitability. It has reported losses in most of the last several quarters as it spent heavily on research, product development and the Gigafactory. It also merged with a solar-panel company where Musk had served as chairman, and more recently outlined a new and potentially costly initiative to produce battery-powered trucks.

Tesla has a long list of customers waiting to get a Model 3. In anticipation of a rapid start of mass production, Tesla has collected deposits of $1,000 for nearly 400,000 Model 3s from prospective customers.