Tesla Model 3 production falls short of expectations after hitting production snags

Javier Stokes
October 4, 2017

In the third quarter, Tesla delivered 26,150 total vehicles and just 220 Model 3 cars versus the FactSet estimates of 25,860 and 1,260, respectively.

In a statement, Tesla said that it is significant to emphasize that there are no fundamental problems with the production of Model 3 or the supply chain.

On Monday, Tesla also mentioned that quite a few systems in its auto plants took longer to activate than it was expected. Total deliveries put the company on pace to exceed its full-year guidance, yet production of the electric-car maker's important Model 3 was behind schedule. "We understand what needs to be fixed and we are confident of addressing the manufacturing bottleneck issues in the near-term", Tesla says. That means that Tesla's vehicles-per-worker-per-year ranged between 8 and 14, or about one-seventh the efficiency of NUMMI two decades ago. "Bears will make this an issue, but this was a very good quarter for Model S and X demand and deliveries". A little over half of those were Model S sedans; the rest were Model X SUVs and the handful of Model 3s. Output of the sedan that starts at $35,000 - roughly half the cost of the least expensive Model S - was lower than expected because of unspecified "bottlenecks", according to the company.

Tesla Model 3's success is critical, demonstrating that the company can cultivate a much wider market for its vehicles.

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While the miss is early on in Tesla's Model 3 manufacturing growth process, it could be an indicator of struggles to come.

The company also boosted its full-year expectations for the Model S and Model X, saying it now expects to deliver more than 100,000 of those vehicles. Tesla's target is an annual production rate of more than 500,000 vehicles a year by the end of 2018. The remaining 220 were Tesla's recently launched Model 3.

Tesla has yet to produce more than about 100,000 cars in a single 12-month period. As you probably know, the Model 3 is a bit of atypical automobile, so we're going to run through a couple of the oddities of the Model 3 that have surfaced in last few days.

"Let's face that the Model 3 is actually sort of a beta test right now", short-seller Jim Chanos, who's betting against Tesla shares, said on Bloomberg Television last week.

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