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Model 3 production delays may require Tesla to raise more cash

06 January 2018

Remember when Elon Musk said Tesla would be making 20,000 Model 3s a month by December 2017?

On the back of these revelations, shares in Tesla fell by 1.7 per cent to $312 in after-market trading. Of the 2,425 Model 3 vehicles produced in the fourth quarter, 793 of them (or almost 33%) were made in the last seven working days of the quarter, according to Tesla.

However, the delays intensify the rate at which Tesla is burning cash-US$1.1 billion in the third quarter and about the same estimated for the last quarter of 2017-and worrying investors, who have yet to see a profit from Tesla.

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"With absolute Model 3 sales tracking behind expectations and Model 3 gross margin improvement likely to be pushed out until production reaches greater scale, the expected cash tailwind from Model 3 will take longer to manifest itself than was anticipated", Evercore ISI analyst George Galliers said in a note. The carmaker has been blowing through more than US$1 billion ($1.4b) a quarter as it's had trouble scaling up output despite spending heavily on robots, assembly lines and tooling for the sedan that is Musk's cheapest yet, starting at US$35,000.

Initially, Tesla planned to roll out 5,000 Model 3s weekly by the end of the fourth quarter of 2017.

The electric-car maker said it delivered 1,550 Model 3 sedans in the fourth quarter, a bit more than half of the 2,917 that Wall Street analysts were expecting. The company delivered 101,312 Model S and Model X vehicles for the year, exceeding its forecast for 100,000 units. "When someone is wrong that often one must question either his honesty or his competence; personally, I question both", said Mark Spiegel of Stanphyl Capital, who is betting against Tesla by short-selling its stock.

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The company said another 2,520 Model S and X vehicles and 860 Model 3 vehicles were in transit to customers at the end of the quarter. Investors, on the other hand, will probably focus on the company's cash flow and the potential effect, which production delays may cause on its performance.

"Perhaps the issues that have significantly hobbled the Model 3 ramp really can be fixed in a cost-effective manner and shortly cycled past (although this did not happen in 4Q)", Brinkman said.

Tesla shares, despite paring some gains from a high of $385 in September, still trade at 46 percent above their price a year ago. The company said it made significant progress on speeding up manufacturing of the sedan late last month, producing 793 units in the last seven working days.

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"Tesla is always a quarter away, and now you have to wait six months to get your report card on your investment thesis", Osborne said by phone Wednesday. "They've kicked the can down the road".

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Model 3 production delays may require Tesla to raise more cash