For weeks now, many have wondered whether Tesla had solved the production challenges hampering the rollout of the Model 3, the company’s first mass-market vehicle.
Last quarter — a period chief executive Elon Musk likened the state of the production process to “Hell” — the company said it had only delivered only 222 Model 3’s, a far cry from its goal of producing 1,500.
During a call with investors Wednesday, Musk expressed a mixture of frustration and optimism and noted that despite the low production numbers, he’s finally able to see “a clear path to sunshine.” He declined to say exactly how many Model 3’s Tesla would be producing by the end of the year, but predicted the number would be “in the thousands.”
“I’d like to say the number at the end of Q4, but there’s too much uncertainty right now to give that with any precision,” he said. “We’re like in a vertical climb here so it’s really hard to say.”
There have been about 500,000 reservations for the sedan, which many experts believe is a key to the company’s long-term profitability. But as Model 3 production sputters, Tesla reported a loss bigger than many analysts projected.
The company reported a loss of $671.1 million, or $3.70 a share, compared to a profit of 21.9 million, or 14 cents a share, for the same period a year ago. Revenue was $2.98 billion for the three-month period, up from roughly $2.30 billion a year ago.
The news wasn’t all bad for Tesla. The company said it recently delivered it’s 250,000 vehicles, a development the company called a “significant milestone,” noting that the Tesla fleet is now “about 100 times larger than it was five years ago, just before the launch of Model S.”
Musk said the primary Model 3 production issues are occurring at Gigafactory 1, the company’s massive battery facility in Nevada, where engineers have struggled to automate the manufacturing process. In addition to redirecting some of Tesla’s best engineering talent to the factory, Musk said he is personally attacking the problem alongside his employees.
“I move myself to wherever the biggest problem is at Tesla,” he said. “I really believe that one should lead from the front lines.”
Musk predicted the company would reach 5,000 Model 3 vehicles per week near the end of the first quarter of 2018 — several months later than originally predicted.
The question facing the company now is whether the production issues will bother anyone outside of the industry observers who track the company’s every movement. Jessica Caldwell, the director of industry analysis with the auto research website Edmunds.com, said prospective Model 3 buyers have more patience than the average car buyer.
“Model 3 reservation holders may not be thrilled about the fact that they have to wait longer than they thought for their vehicle, but it likely won’t cause them to cancel their orders en masse,” Caldwell said. “Many Model 3 customers put deposits down on the vehicle more than a year ago before they even saw the vehicle, so it’s clear Tesla buyers don’t follow the usual logic-driven car buying process.”
Trip Chowdry, a senior analyst at global equities research, cautioned against investor panic as well. Financial results, he argued, mean little when analyzing the long-term prospects of a company that is creating a new industry.
“Earnings mean nothing for companies that are creating new industries from ground up,” he said. “They are learning from their failures and they’re very quick to overcome them.”
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