Tesla pulls off long-sought feat of mass-producing the Model 3

Monday , July 02, 2018 - 9:11 AM

Dana Hull

(c) 2018, Bloomberg.

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.

Output reached 5,031 in the last week of the second quarter, exceeding a target that Tesla’s chief executive officer 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.

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 surged as much as 6.4 percent Monday and were up 4.5 percent to $358.49 as of 10:10 a.m. in New York.

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.

“The last 12 months were some of the most difficult in Tesla’s history,” the company said in a statement Friday. Achieving the 5,000-a-week Model 3 target “was not easy, but it was definitely worth it.”

Model 3 customers are proving to be a patient bunch through all of Tesla’s manufacturing challenges. The company said the reservation count for the sedan is at about 420,000 and that orders may outpace production growth once more cars arrive in stores for test drives.

While Tesla 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.”

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