Tesla under pressure to deliver Model 3 orders
Fremont, Ca. — With pressure escalating after one of the worst weeks in its almost 15-year-history, Tesla Inc. raced to manufacture and deliver its mission-critical Model 3 sedan to burnish the numbers it’s about to report to rattled investors.
Tesla’s Fremont, Calif., delivery hub was packed with people Saturday evening as the last hours of the quarter drew to a close. Red couches and tall white tables were set up outside, a DJ played music and a truck selling Vietnamese food was on hand. Behind the scenes, a company that’s struggled to figure out how to mass manufacture cars implored workers to get production on track and prove the doubters wrong.
The skeptics are getting louder after last week. The electric-car maker led by Elon Musk came under regulatory scrutiny for the second crash this year involving Tesla’s driver-assistance system Autopilot, the latest of which resulted in a fatality. Moody’s Investors Service downgraded the company’s credit rating further into junk, citing the combination of production issues and mounting obligations that could necessitate a more than $2 billion capital raise soon to avoid running out of cash.
“Tesla is testing our patience,” Gene Munster, a managing partner at venture capital firm Loup Ventures who’s been bullish on the carmaker, wrote in a report Thursday after the company announced it would have to repair a power-steering issue with the Model S. “When we heard the recall news tonight we asked ourselves, do we still believe in the story?”
Musk first unveiled the Model 3 on March 31, 2016, and hundreds of thousands of consumers have placed $1,000 deposits for the sedan that’s emblematic of the chief executive officer’s bet that electric cars can have mainstream appeal. From the looks of social media posts by customers who took delivery of their Model 3 over the holiday weekend, the company still maintains an army of true believers.
“Two years ago to the day, I put down a deposit on a car I’d never even seen before,” Amanda Bell, a software developer in Nashville, wrote Saturday on Twitter. “Today, I picked up my dream car.”
Since starting Model 3 production in July of last year, Tesla has pushed back production goals for the car several times, citing issues with battery output and automating its assembly lines. The company forecast back in January that it would likely end the first quarter making about 2,500 units of the car a week. Tesla reports production and deliveries results within a few days of each quarter ending.
Bloomberg is tracking the Model 3 rollout with an experimental tool that estimates production using vehicle identification numbers. The tracker estimates that Tesla is building about 1,190 Model 3s a week as of Sunday, though that figure may not capture a last-minute burst in output.
Analysts are projecting total deliveries for the quarter of about 8,800 units, the average of seven estimates. Bloomberg’s Model 3 tracker estimates Tesla may have produced almost 9,300 Model 3 sedans in the quarter.
The tracker shows an increase in production in the last few weeks as Tesla invited a limited number of workers from the Model S and Model X factory lines to volunteer to work on the Model 3. Heading into the final week of March, Doug Field, senior vice president of engineering, urged workers to safely ramp up output to more than 300 vehicles a day and to “prove a bunch of haters wrong.”
Barclays Plc analyst Brian Johnson has warned clients to watch out for a potential “burst rate bear trap,” in which Tesla beats Wall Street’s lowered projections for Model 3 deliveries. He estimates Tesla is producing 1,500 to 1,700 units of the Model 3 each week.
“We think it’s possible Tesla may have stockpiled batteries amid Fremont downtime, allowing production to be higher in the final week,” Johnson wrote in a report Thursday. “Any such beat’ is unlikely to be sustainable, and questions remain on Tesla’s ability to sustainably reach” its production goals.
Safety concerns about Tesla’s Autopilot are now deepening as the company faces a pileup of other challenges. The National Transportation Safety Board is investigating a fatal Model X crash that occurred March 23 near Mountain View.
Tesla published a blog post late Friday to announce that the driver involved in the crash had engaged the driver-assistance system and didn’t have his hands on the steering wheel for six seconds before colliding with a highway divider, despite receiving several visual and one audible warnings earlier.
“This is another potential illustration of the mushy middle of automation,” Bryant Walker Smith, a University of South Carolina law professor who studies self-driving cars, said in an email. Partial automation systems such as Tesla’s Autopilot “work unless and until they don’t,” and there will be speculation and research about their safety, he said.
Moody’s downgraded Tesla’s corporate family rating last week to B3, six levels into junk, sending the company’s unsecured bonds to all-time lows. Late Thursday, the carmaker recalled all 123,000 Model S cars built before April 2016 to retrofit a power-steering component.
Still, the answer to whether Munster of Loup Ventures still believes in Tesla is yes.
“The company is uniquely positioned to capitalize on a dramatic shift” in the auto industry, Munster said, as well as to “innovate in both EV and autonomy, and usher in a new paradigm of manufacturing efficiencies.”