Tesla posts big loss, delays Model 3 production goals

Keith Laing

Tesla Inc. reported its biggest-ever quarterly loss as the company delayed by months a production goal for its critical Model 3 sedan.

The Silicon Valley automaker Wednesday pushed back its 5,000-per-week production goal for the car — from the end of this year, to late in the first quarter of 2018. The Model 3, with a starting sticker price of about $35,000, has been plagued by production problems. The main bottleneck is at Tesla battery plant in Nevada, known as the Gigafactory. Tesla also reportedly is encountering problems with welding and assembly at its Fremont, California production facility.

It sold just 222 Model 3s from July through September.

Tesla on Wednesday attributed the increased losses — $619 million for the third quarter — in part to the production problems, although it expressed confidence in the long-term viability of the car.

“We continue to make significant progress each week,” CEO Elon Musk said in a live webcast from the Gigafactory during which he sought to reassure investors. “We see no fundamental problems with our supply chain or any of our production processes. Obviously there are bottlenecks. There are thousands of processes in creating the Model 3, and we will move as fast as the slowest and least lucky process among those thousands.”

Tesla lost nearly twice as much money during the period from July to September as the $336.4 million loss it reported in the second quarter.

In anticipation of the company’s third-quarter results, shares of Tesla stock fell 3.2 percent Wednesday in regular trading to $321.08 The quarterly earnings report came out after markets closed, and by 7:30 p.m. in after-hours trading the stock price dropped an additional 4.6 percent to $306.24.

Tesla had said previously that it expected to achieve a production rate of 10,000 Model 3 vehicles per week in 2018. Musk downplayed the reduction of the target Wednesday, saying, “I think in the grand scheme of things, this is a very small shift.

“The Model 3 is a 10-year program, so we’re talking about a few months out of a 10-year program.”

Musk issued $1.8 billion in bonds during the third quarter to finance the car’s launch. Tesla reported having a $3.5 billion cash balance heading into the final quarter of the year, up $494 million from the cash balance that Tesla reported in July.

Tesla has touted the Model 3, which starts at about $35,000, as a “compelling, high-performance and long-range electric vehicle that is also affordable.” Tesla said it sold 25,915 Model S and Model X vehicles in the third quarter, in addition to the handful of Model 3s it delivered.

By comparison, General Motors Co. sold 6,710 all-electric Chevrolet Bolts in the third quarter, with an additional 2,781 in October. The two electric cars for the mass market are seen as direct competitors.

Tesla said the main bottleneck has been in the battery module assembly line at the Gigafactory, where cells are packaged into modules.

“The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected,” the company said.

The automaker fired hundreds of employees last month in job reductions the company attributed to performance reviews. Musk bristled at suggestions that the firings were related to Tesla’s recent financial performance.

“These are really ridiculous, and any journalists who have written articles of this respect should be ashamed of themselves for lacking journalistic integrity,” he said. “Every company in the world does annual performance reviews.”

Kelley Blue Book executive analyst Rebecca Lindland said Tesla’s problems go deeper than the Model 3. But she predicted investors will remain loyal.

“Tesla continues to be thought of as a tech company, not an auto manufacturer,” she said. “So while production of the Model 3 lags and becomes a balance-sheet liability, it’s having minimal impact on the stock price. Many investors are likely taking a long-term view and will stick with Tesla despite the recent spate of lawsuits about production delays and performance-related firings. Clearly, there’s more than just production hell going on behind the scenes at Tesla right now.”