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Tesla hits Model 3 production target, backs profit view

FILE PHOTO: A Tesla Model 3 sedan is displayed during its launch in Hawthorne

FILE PHOTO: A Tesla Model 3 sedan, its first car aimed at the mass market, is displayed during its launch in Hawthorne, California, U.S. March 31, 2016. REUTERS/Joe White/File Photo

By Supantha Mukherjee

(Reuters) – Tesla Inc reaffirmed a positive cash flow and profit forecast for the year on Monday after achieving its goal of producing 5,000 Model 3 electric cars in the final week of June.

Tesla, which Chief Executive Elon Musk hailed on Sunday as having become a “real car company,” said it now expects to boost production to 6,000 Model 3s per week by late August, signaling confidence about resolving technical and assembly issues that have plagued the company for months.

The electric carmaker’s shares rose as much as 6.4 percent to $364.78 in early trading, after Tesla said it produced 5,031 Model 3 cars in the last seven days of the second quarter. The shares gave up those gains later, however, and were down more than 2 percent by midday.

“We believe reaching the 5K units per week mark is ahead of investors’ expectations (in the 4K to 4.5K range) for Model 3,” Evercore analysts wrote in a client note. “We had expected Tesla to finish the quarter at a weekly run-rate of 4.6K units.”

Money-losing Tesla has been burning through cash to produce the Model 3, and delays have also potentially compromised Tesla’s first-to-market position for a mid-priced, long-range battery electric car as a host of competitors prepare to launch rival vehicles.

Some analysts questioned if Tesla would be able to sustain the Model 3 production momentum, which is crucial for the long-term financial health of the company.

“There’s a big difference between making 5K Model 3 units for 1 week vs. sustaining 5K per week,” Morgan Stanley analysts said.

Production of the mass-market sedan has had several issues, including problems with an over-reliance on automation on its assembly lines, battery issues and other bottlenecks.

To meet its goal, Tesla had set up a new production line inside a tent on the campus of its Fremont factory. The company said the new general assembly line was responsible for about 20 percent of Model 3s produced last week.

Model 3 production tripled to 28,578 in the company’s second quarter from the previous quarter, Tesla said.

The company said 11,166 Model 3 vehicles were in transit to customers at the end of the second quarter, and would be delivered early next quarter.

Reservations at the end of the second quarter stood at roughly 420,000. Tesla has delivered 28,386 Model 3 cars to date. Model 3 reservations totaled 450,000 at the end of the first quarter.

“This is very positive news for Tesla because the Model 3 takes them from a niche core producer to a mainstream automobile manufacturer,” Tigress Financial Partners analyst Ivan Feinseth said.

The company said it expects orders to grow faster than production rate after it starts allowing potential customers to see and test drive Model 3s at local stores.

Despite originally touting the Model 3 as a $35,000 vehicle, Tesla has yet to begin building that basic version and instead is currently building a higher-priced version as it tries to come out of “production hell.”

“The last 12 months were some of the most difficult in Tesla’s history,” the company said in a statement.

(Reporting by Supantha Mukherjee and Munsif Vengattil in Bengaluru; Editing by Saumyadeb Chakrabarty and Tom Brown)

 

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