Published: Fri, November 03, 2017
Economy | By Melissa Porter

Tesla, Inc.'s Loss Widens Amid Model 3 Production Delays

Tesla, Inc.'s Loss Widens Amid Model 3 Production Delays

Now in Q3, the company's financial statement reflects more of that drama, good and bad. The electric vehicle producer reported ($2.92) earnings per share for the quarter, topping the Thomson Reuters' consensus estimate of ($3.09) by $0.17.

For Tesla's outlook, the company expects that Model S and Model X are on pace for about 100,000 deliveries in 2017, an increase of 30 percent year over year. Vanguard Group Inc. boosted its holdings in shares of Tesla by 4.9% during the 2nd quarter.

Tesla said it had produced just 260 of the Model 3 cars in the third quarter, less than a fifth of the 1,500 vehicles it had planned to build. Preorders for the Model 3 are estimated to total about 500,000. "Deliveries Rise, but Model 3 Production Lags" on October 03, 2017.

In opening remarks on an earnings call today, Musk said he was "doing this call from the Gigafactory because that's where the production constraint is".

In other Tesla news, Director Kimbal Musk sold 2,190 shares of the firm's stock in a transaction on Friday, September 1st. "I believe one should always lead from the front lines".

"(1) What is happening to demand for the product? Four modules are packaged into an aluminum case to form a Model 3 battery pack. We have redirected our best engineering talent to fine-tune the automated processes and related robotic programming, and we are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification. Musk threw blame at a subcontractor who "really dropped the ball". "We had to rewrite the software [for a battery assembly area] from scratch".

"We see additional capital needs to deliver Model Y by late 2019 (~$3-6bn Gigafactory/assembly plant) in addition to the cash needed to expand its dealerships and charging stations". "The Model 3 is a ten-year program".

Tesla aimed to produce 1,500 Model 3s in September alone, before ramping up to 20,000 per month by December.

Tesla expects its automotive gross margin to continue to worsen again in the fourth quarter, driven by high Model 3 costs associated with low-volume Model 3 production.

That could be a major problem, as Wall Street investment firm UBS cautioned in a report this week.

Baird analyst Ben Kallo is still a believer in the company, so he reiterated his Outperform rating and $411 price target for Tesla Inc (TSLA) stock following the results, and he's not the only one to hold steady. "And it would be serving the China market", he clarified, noting that the factory would probably only make Model S and as-yet-unannounced Model Y vehicles. (TSLA), says venture capitalist Gene Munster, formerly a respected technology sector analyst for 21 years at Piper Jaffray, and now at Loup Ventures.

More immediately, it is far from clear how much the current problems in Fremont will delay the ramp-up of production on the new sedan that is supposed to turn Tesla into a mainstream automaker and transform years of losses into massive profits - Musk long promising profit margins would reach the unprecedented level of 25% or more.

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