One of the biggest reasons Tesla Inc (Nasdaq: TSLA) stock is down 15.9 percent in the past three months is the company’s inability to hit its Model 3 production target of 5,000 vehicles per week. Tesla said in early May that it still expects to reach that 5,000 per-week rate by the end of June, but Needham analyst Rajvindra Gill now projects that Tesla won’t hit that target until sometime in the second quarter of 2019.
Tesla originally said it would produce Model 3s at a rate of 5,000 per week by the end of 2017. That target was then bumped to the end of the first quarter and then again to the end of the second quarter. Tesla has blamed production bottlenecks for its inability to hit its targets, and Gill says those production issues are far from resolved.
“Our comprehensive checks on Model 3 production point to manufacturing problems, particularly at the battery cell level, module assembly and factory automation lines,” he says.
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Gill says these issues will keep Tesla from reaching full Model 3 production capacity for another year or so.
“Our checks indicate that Tesla probably won’t get to 2,500 per week on a sustainable basis (not just for a week) until 3Q and we don’t foresee 5,000 per week until 2Q19,” he says.
Gill says if Tesla does manage to hit its near-term production targets, it will likely do so by sacrificing profitability and gross margins, trade-offs the company can’t afford to make given its precarious financial situation.
Tesla burned through $1.1 billion in cash in the first quarter but has repeatedly assured investors that it would not need to raise additional capital in 2018. A big part of that promise depends on Model 3 profitability. Tesla says Model 3 gross margins will be “highly positive” by the second half of 2018, and CEO Elon Musk has said Tesla will be profitable and cash-flow positive by the third quarter.
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In addition to production and profitability concerns, Tesla has also been dealing with quality and safety issues with the Model 3. Tesla recently issued a software update to fix Model 3 braking performance after a Consumer Reports review of the vehicle criticized its braking. Musk said Consumer Reports’ additional quality and safety concerns will be addressed in future updates.
Needham has a “hold” rating for TSLA stock.
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Tesla Inc (TSLA) May Have More Production Problems originally appeared on usnews.com
