Tesla shares plunge as Musk is on the defensive

Violet Tucker
November 8, 2017

Tesla shares dropped by as much as 5.4% on the news in after-hours trading, before recovering slightly.

There are four "zones" in battery module production for the Model 3, and there was a particularly severe problem in one of them, Musk said. Addressing the problem required rewriting all the fundamental software for the process from scratch, which Tesla was able to do with a lot of hard work, but redoing the components and electronics required to retool the line will take longer. "In the grand scheme of things", Musk said, "this is a relatively small shift".

"We left the call frustrated with the lack of transparency from Tesla management", Jeffrey Osborne, a Cowen & Co. analyst who recommends selling the shares, wrote in a note to clients. After launching the mass-market Model 3 sedan, Musk at the time said the automaker would manufacture 20,000 of those vehicles by December, but had only produced 260 as of Oct. 2. "It's really the only was to make the cars affordable in China...but it's three years out", Musk said. That's compared with a cash burn of $1.16 billion during the second quarter.

Tesla's Model 3 website originally envisioned a Model 3 production capacity of 5,000 vehicles per week by the end of 2017, but the company has pushed that projection back to the first quarter of 2018 while it deals with bottlenecks.

Thousands of Model 3s were supposed to have been sold by now. Indeed, he noted, he'd even been there at 2 a.m. on a Sunday morning pitching in to help fix the battery production. The company cited the battery assembly line at its Nevada Gigafactory as the primary constraint in Model 3 production, adding that it will reduce Model S and Model X production by 10 percent in the fourth quarter to move inventory and dedicate more manpower to Model 3 output.

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The letter highlights battery module assembly at Gigafactory 1 as the single bottleneck that's holding up the process today. We have redirected our best engineering talent to fine-tune the automated processes and related robotic programming, and we are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification. A manufacturing presence in the country could boost its revenue in the world's largest electric vehicle market.

The company burned through $1.4 billion in cash during the quarter as it continued to invest heavily in manufacturing operations. That's reminiscent of the Tesla Model X production ramp where issues with the falcon-wing door mechanisms stalled the ramp early on.

Comparing that to the Model 3 body welding video that was also embedded in the quarterly earnings letter, they still have a ways to go.

"Model 3 has been designed for manufacturability, so the car itself is not difficult to build".

Other reports by Guamnewswatch

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