Tesla 3Q production numbers up, but are they sustainable?
October 2, 2018 by Michael Liedtke and Cathy Bussewitz The Associated Press
October 2, 2018 – Tesla Motors accelerated production of its pivotal Model 3 sedan during the summer just as CEO Elon Musk promised, vindicating the electric car maker’s leader amid a backdrop of baffling behaviour that jeopardized his job.
The company announced Tuesday that it produced 80,142 vehicles in the third quarter, marking a 50 per cent increase over the previous quarter. Tesla also made a major leap in the number of cars that were delivered to customers who had pre-ordered them.
The progress is essential to Tesla’s survival, not only to preserve customer loyalty but to bring in the cash that the company will need to repay $1.3 billion in debt coming due within the next six months. Producing more cars also should help Tesla begin making money, something it has been unable to do since going public eight years ago.
“Today’s production announcement offers a bit of redemption to the Tesla faithful,” says Jeremy Acevedo, Edmunds manager of industry analysis, in an email.
It also reverses a trend in which Tesla regularly missed its production goals while amassing huge losses, fueling doubts about its ability to expand from its niche of making luxury sports cars powered by electricity to become a major automaker. When the company hit its target for the first time in the last week of June, some questioned whether the feat was sustainable.
Musk worked nearly to exhaustion to keep that momentum going during the past quarter. He has publicly said he has been working as much as 120 hours per week and sometimes even slept on Tesla’s factory floor in Fremont, California, to oversee the efforts to make more cars. The company even built a heavy-duty tent to add space to produce Model 3s.
The past quarter’s accomplishments aren’t likely to keep skeptics from wondering if Tesla will be able to crank out enough of its cars to be profitable.
“Going forward, it doesn’t prove much,” says Erik Gordon, a professor at the University of Michigan Ross School of Business. “They’re still producing in a tent, they’re still producing the numbers by working crazy hours, with crazy cheerleading by Musk…It’s sort of this insane carnival.”
A total of 53,239 Model 3 vehicles rolled off Tesla’s assembly line during the third quarter, hitting Musk’s target of 50,000 to 55,000 for Tesla’s first electric car designed for the mass market, and nearly doubling the second quarter’s volume.
It produced 26,903 Model S and X vehicles. That’s slightly better than its second-quarter performance and in line with its full-year guidance. The company’s target of 100,000 Model S and X deliveries in 2018 remains unchanged.
“It’s refreshing to see the company making headlines for producing cars, not controversies,” Acevedo says.
Indeed, the controversies abound for Tesla. Just last week, Musk cleared a dark cloud hanging over the company when he agreed to settle a Securities and Exchange Commission case alleging he had misled investors by declaring he had lined up the financing to take Tesla private. The SEC wanted to oust Musk as CEO as punishment. Musk is staying on as CEO, but giving up his chairmanship. Musk and Tesla will each pay $20 million to resolve the case.
The next challenge for Musk is proving he has the business savvy to steer Tesla into the promised land of profits.
In a Sept. 30 email, filed with the SEC on Monday, Musk says the electric car maker is nearing profitability.
“We are very close to achieving profitability and proving the naysayers wrong, but, to be certain, we must execute really well tomorrow (Sunday),” the last day of the quarter, Musk says. “If we go all out tomorrow, we will achieve an epic victory beyond all expectations. Go Tesla!!!”
Investors on Tuesday seemed to interpret the email to mean that Tesla won’t post a profit for the third quarter, something that Musk had promised when addressing stock market analysts in early August. Tesla’s shares dipped one per cent to $306.24 during Tuesday’s midday trading after soaring Monday on the news of the SEC settlement.
Analysts are expecting Tesla to report a third-quarter loss of about $200 million, according to FactSet. Tesla is expected to release its financial results early next month.
Other problems plague Tesla. Although it successfully reached its production goals for the third quarter, getting those vehicles into the hands of consumers has proven to be a headache.
Tesla delivered 83,500 vehicles in the third quarter, which is more than 80 per cent of the vehicles that it delivered all of last year.
But customers have been complaining that their Tesla delivery dates have been delayed over and over while vehicles sit unmoved in lots. One tweeted to Musk last month: “There are 42 Tesla’s sitting at the Union Pacific Railroad in SLC. My car is one of these. I’ve been told I was getting delivery the 8th, then the 15th, then the 20th, then the 22nd, and now my delivery has been delayed indefinite. ?Tesla ?elonmusk… Please make this right.”
Musk tweeted back and acknowledged the problem: “Sorry, we’ve gone from production hell to delivery logistics hell, but this problem is far more tractable. We’re making rapid progress. Should be solved shortly.”
Gordon says patience is wearing thin for people who have already put down $1,000 to get on a waiting list for the Model 3.
“This business of putting down a deposit and waiting forever to get the coolest car on the planet, well it’s no longer going to be the coolest car on the planet, so you’re going to have to start delivering them or people are going to stop buying them,” he says.