Tesla claims it reached long-sought production goal for Model 3
SAN FRANCISCO -- Tesla Inc. engineered a late-quarter production burst with the Model 3, the model that’s pivotal to Elon Musk’s goal of putting electric cars into the driveways of mainstream consumers.
The company said Monday that output reached 5,031 in the last week of the second quarter, exceeding a target that Tesla’s CEO has said is crucial to generating cash and earning profit. About 20 percent of those cars came off a makeshift line that the company built last month underneath a tent outside its California assembly plant.
"The last 12 months were some of the most difficult in Tesla’s history, and we are incredibly proud of the whole Tesla team for achieving the 5,000 unit Model 3 production rate," the company's statement said. "It was not easy, but it was definitely worth it."
Musk sent an email Sunday to salute staff for achieving a goal to produce 5,000 of the sedans in the final week of June. The progress Tesla is making with the Model 3 is critical to the carmaker being able to sustain itself while pursuing the 47-year-old’s mission to get the world transitioning to battery-powered transportation.
Tesla hasn’t earned an annual profit in its 15-year history. It has regularly had to go back to Wall Street to raise billions of dollars after burning through cash at rates that have alarmed some investors and credit ratings companies.
Proving these production rates can be sustained will be key to justifying a market capitalization that’s again surged past General Motors to make Tesla the most valuable U.S. automaker. The shares initially surged 6.4 percent in early trading but retreated 2.3 percent to close the day at $335.07.
Tesla reaffirmed its guidance for positive net income and cash flow in the third and fourth quarters, even though a weaker dollar and tariffs on vehicles and parts being sent back and forth between the U.S. and China may drag on results. It also forecast that it’ll be able to build 6,000 Model 3s a week by late August.
While UBS analyst Colin Langan said there was some relief the company hit Musk's target, he noted that second-quarter vehicle deliveries of 40,740 missed his expectation for 51,000 and the consensus estimate of 49,000.
He also questioned whether the company could keep up the faster production and its profit outlook.
"We're very worried about quality and if you read the reports online there's significant quality issues. They still haven't proven they can produce these profitably. The math is very challenging in getting to a sustained profit," said Langan.
Tesla forecast positive net income for the third and fourth quarters, but Langan was less optimistic, saying he does not expect a net profit in the third quarter and that a fourth-quarter net profit could be temporary as the average price of the cars sold will likely come down in 2019.
While the company doesn’t disclose vehicle sales by region, it’s close to reaching cumulative sales of 200,000 electric vehicles in the U.S. That’s a critical threshold: Once an automaker hits that number, the $7,500 federal tax credit begins to ratchet down and phase out over subsequent quarters.
Tesla delivered 18,440 Model 3s in the second quarter and reported that an additional 11,166 were in transit to customers. The significant number of vehicles in transit may mean the company fell short of the 200,000 mark in June, which would enable the tens of thousands of customers who take delivery this quarter to receive the full tax credit.
One customer who took delivery of his Model 3 in the second quarter was Major Earl Banning, 42, an Air Force neuropsychologist living in Dayton, Ohio. He took delivery on May 29 and drove it about 2,300 miles in June.
“The car blew away my expectations,” Banning said. “It makes other cars feel obsolete.”
Reuters contributed to this report.
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