Tesla Model 3 Deliveries Falter

Saul Franklin
January 5, 2018

Tesla Inc.'s (TSLA) delivery of its new Model 3 electric auto fleet fell short of Wall Street's estimates in the fourth quarter and reported production issues have clouded public opinion of the company's newest sedan.

Tesla's future is tied closely to the promise of the Model 3, a no-frills sedan that's roughly half the cost of a low-end luxury Model S and Model X. Musk has said that his Model 3 is meant to be an electric vehicle for the budget-conscious, and its development would be subsidized by the glitzier older models.

Tesla shares fell as much as 3.6 per cent to US$305.68, the biggest intraday drop in five weeks. Despite just 1,550 units of the new entry-level Model 3 reaching customers' hands during that quarter, it all adds up to a 9% increase over the third quarter and a 27% jump compared to the same period in 2016.

Tesla managed to produce only 2,425 Model 3 cars in that same quarter. "We intend to achieve the 5,000 per week milestone by the end of Q2". Tesla is seemingly under a massive production problem which pulls most deliveries down; the company's shares were also affected by the deliveries news in the after-hours trading.

We're very grateful to everyone at Tesla who has poured their heart and soul into helping with the Model 3 ramp and creating the progress we are seeing.

Those older models appear to still be selling well, according to Tesla.

Tesla shares are sliding ahead of Thursday's opening bell, down 5.44% at $300, after the company reported fourth-quarter Model 3 deliveries that missed estimates by a mile.

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Heading into the report, Tesla slightly reduced production of the Model S and Model X "because of the reallocation of some of the manufacturing workforce towards Model 3 production, which also caused inventory to decline", it said.

Tesla said it delivered 101,312 Model S and Model X vehicles in 2017, a 33 percent increase from the year before.

Robert W. Baird & Co. analyst Ben Kallo said he sees Tesla having enough cash and additional liquidity sources to cover it through the revised 5,000-a-week schedule, meaning no capital raise will be required in the first half of this year.

Tesla's announcement came after NY markets' closing time. It manufactured 793 Model 3's in the last seven working days of the quarter. Instead it made just 2,425 during the whole quarter.

In July, CEO Elon Musk tweeted that the company could most likely produce 20,000 Model 3s a month by December.

It'll take Tesla another three months to double that number. "They don't have a ton of wiggle room though in our view", Spak said.

Beyond the Model 3, Tesla's overall vehicle deliveries were on target for the fourth quarter and the year as a whole.

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