Add to favourites
News Local and Global in your language
24th of November 2017

Automotive



Tesla Model 3 production delays start to take toll on company

Share Facebook Tweet Pinterest Email

Earlier this summer Tesla forecast it would produce 5,000 Model 3s per week by the end of the year, and then work to double that to 10,000 cars per week by the end of 2018.

This forecast has now been pushed back; Tesla now plans to hit 5,000 cars per week by the end of March 2018, having completed just 260 cars during the third quarter of 2017 compared to 1,500 expected during this period. The total number of Model 3s completed by the second week of November is believed to be roughly 500 cars.

Elon Musk has refused to say how many Model 3s the company completed in October, saying that "people would just read too much into it."

The main obstacles that have prevented Model 3 production from hitting expected targets have been steel welding issues -- Tesla has relied heavily on adhesives and rivets in previous aluminum-intensive models -- as well as the assembly of battery modules at its battery plant in Nevada ahead of their placement into cars. A number of smaller issues have contributed to bottlenecks on the production line, according to several reports, some of which have been overcome in recent weeks. But in the second week of November the company cited battery pack assembly and welding robot processes as the main impediments to speedy assembly.

Tesla faces questions as Model 3 production struggles

The production delays have been tremendously costly for Tesla -- plenty of cash is being expended even as production crawls along. Markets have long been inoculated to the electric automaker's missed deadlines, but financial experts are starting to worry.

First, there is the issue of cash burn: Tesla has spent well over half of the $3.2 billion raised since the spring of this year preparing for Model 3 production. Tesla is estimated to have spent approximately $1.4 billion in the third quarter alone, after spending around $1 billion in the second quarter. Taking Tesla's current forecast of hitting 5,000 cars a week by the end of March 2018 at face value does not answer how the company plans to get to March and beyond, outside of a best-case-scenario in which it solves all announced production issues.

Second, Tesla has been expecting to rely heavily on deliveries of the Model 3 to generate cash to meet production needs. The significant shortage of completed and delivered cars now represents a cashflow problem that cannot be overcome by somehow "making up ground" in the near future, even if such a thing was possible. In essence, Tesla counted on early Model 3 deliveries to provide a good chunk of medium-term cash for operating expenses; since deliveries haven't materialized, the problem essentially gets carried forward as a burden. Just multiply 5,000 cars per week by the estimated $35,000 starting price and a figure of $175 million emerges -- that's roughly how much money the Model 3 was expected to generate per week by December of this year to keep production going. There are certainly ways around this cashflow problem, but they are becoming more and more contingent on Tesla meeting the March 2018 target that it announced earlier this month. For the next four and a half months Tesla will essentially be relying on the faith that markets and investors still have in the company.

Tesla posts record losses Tesla: Record losses, more delays

Tesla Inc. posted a $671 million loss for the third quarter -- its largest ever quarterly deficit -- dropping from a $22 million net profit recorded for the same period last year.The electric-vehicle ...

Third, there is the issue of assembly quality. Are the Model 3s being delivered now up to quality standards? Tesla has been delivering the Model 3 to insiders a few truckloads at a time, so relatively few completely unbiased impressions of fit and finish have actually emerged. Tesla hosted a very closed-door Model 3 drive event for investors at its Red Hook store in Brooklyn, New York, over the weekend, letting a few hand-picked Wall Street analysts briefly drive the Model 3 (accompanied by Tesla employees and prohibited from taking videos or photos).

At least one Wall Street analyst was not impressed with the fit and finish of the car, noting that the cars provided to guests were likely among the best-built that Tesla had on hand.

"We had the opportunity to see and test drive the Model 3 at Tesla's showroom in Red Hook Brooklyn, NY … Fit and finish on the two demo cars we saw – perhaps not surprisingly – was relatively poor," Bernstein analyst Toni Sacconaghi said in a note to clients, CNBC reports.

"While we doubt that it would impact (or even be noticed by) most prospective buyers, we do worry that poor overall initial quality could undermine Tesla's brand and potentially overwhelm its service network," Sacconaghi added.

Sacconaghi noted misalignments in body panel gaps, rubber trim, interior ceiling seams, and the glass roof in the short time that he spent in the sedan, CNBC reports.

GOP tax plan to eliminate $7,500 electric car tax credit

These first impressions are, of course, just first impressions based on a relatively short period of time with a very early car, and the items noted are perhaps not too dissimilar from fit and finish in early Model S and Model X cars -- we'll give Tesla the benefit of the doubt when it comes to early production examples that it had on hand to bring to the east coast for this event. But these comments echo a handful of other first-hand reports of fit and finish issues on delivered cars.

As many analysts have noted in recent months, the issue of initial quality has not appeared to dent Tesla sales in the past and it's not expected to damage Tesla's reputation or financial health in the very near term. But these first few hundred cars are going to Tesla employees and friends of the company -- people who are unlikely to be slighted by minor issues that they fully understand and expect. The real test will be once Tesla is several thousand cars into the production cycle, cars not destined for the driveways of the Tesla faithful, by which time it will be expected to have a better than "pilot series" level of component fit.

In other words in March 2018, best-case scenario.

Read More




Leave A Comment

More News

WIRED

ABR - News

Car and Driver Blog

All Motor Trend Stories RSS

Automotive news - from

High Gear Media Network Feed

Featured Articles

GoAuto RSS - Car News

The Truth About Cars

Disclaimer and Notice:WorldProNews.com is not the owner of these news or any information published on this site.