Tesla shares decline as Musk falls short on Model 3 production target

Tesla pushed back a production target for its Model 3 again after shipping fewer of the sedans than expected. Courtesy of Tesla Motors via AP.

Tesla pushed back a production target for its Model 3 again after shipping fewer of the sedans than expected, setting back Elon Musk’s goal to mass-manufacture electric cars.

The company now expects to assemble 5,000 Model 3s a week by the end of June, delaying plans to reach that milestone by another three months. Tesla didn’t come close to achieving an earlier forecast that it would manufacture that many of the sedans a week by the end of 2017.

Tesla’s slower ramp up in manufacturing Model 3s led analysts to raise the prospect that another capital raise could be coming. The company has been blowing through more than US$1 billion a quarter as it has had trouble scaling up output despite spending heavily on robots, assembly lines and tooling for the sedan that is Musk’s cheapest yet, starting at $35,000.

“Bears will point to this as another missed promise,” Joe Spak, an analyst at RBC Capital Markets, said in a note to clients. Tesla doesn’t have “a ton of wiggle room” and should raise capital to mitigate risks, he wrote.

Tesla shares fell 2.1 per cent to $310.65 after the close of regular trading Wednesday. The stock climbed 46 per cent in 2017, ending the year with a $52.3 billion market capitalizsation, placing the car maker ahead of Ford Motor and behind General Motors.

The company reported deliveries of 1,550 Model 3s in the final three months of the year, trailing analysts’ average estimate for about 2,900 units in a Bloomberg News survey.

Including Model S sedans and Model X crossovers, Tesla delivered a total of 29,870 vehicles during the fourth quarter. The company delivered 101,312 Model S and Model X vehicles for the year, exceeding its forecast for 100,000 units. Sales of those more expensive models jumped 33 percent from 2016.

In its statement, Tesla thanked customers “who continue to stick by us while patiently waiting for their cars.” The company announced the acquisition of Perbix, a closely held maker of automated machines used for manufacturing, back in November a week after Musk cited challenges with automating Model 3 production.

“Tesla has really lofty goals for automation,” Tasha Keeney, an analyst at ARK Investment Management, which holds Tesla shares, said. “One you have it right you can ramp really quickly, but getting to that phase is the difficult part.”

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Tesla ended September with about $3.5bn cash in hand and projected another $1bn in capital expenditures during the last three months of the year. By postponing production plans, the company may also defer spending, said Jeff Osborne, an analyst at Cowen & Company who has the equivalent of a sell rating on the shares.

“The big question is how much longer are people willing to wait?” Osborne said in a phone interview. “Every quarter that passes brings on more competition in terms of other vehicles being introduced.”

Tesla reported 860 Model 3 sedans were in transit to customers at the end of December. The company said it made significant progress on speeding up manufacturing of the sedan late last month, producing 793 units in the last seven working days.

Company's chief financial officer Deepak Ahuja said during an earnings call in November that cash flow will improve significantly once Tesla ramps up Model 3 output because the company will collect money from customers before paying its suppliers. Cowen’s Mr Osborne wrote in a report to clients Wednesday that the car maker may need to raise more capital again in the next three to six months.

“Tesla is always a quarter away, and now you have to wait six months to get your report card on your investment thesis,” Mr Osborne said by phone. “They’ve kicked the can down the road.”