Tesla falls behind on Model 3 production, burns cash at record rate

US electric vehicle and battery storage maker, Tesla, has pushed back production targets for its Model 3 sedan by around three months, a delay the company has blamed on production line bottlenecks at its Nevada Gigafactory.

In an announcement detailing the company’s Q3 results on Wednesday afternoon (US time), Tesla executives said there had been “some problem areas” along the production line for the mass market Model 3 EV, which meant it would be slower to reach its target of 5000 cars a week, which it had hoped to do by Christmas.

The company delivered just 222 Model 3 cars in Q3, against an order book of more than 400,000, and – as Business Insider has put it – “absolutely has to build all those cars to make its current business work.”

All too aware of this is Tesla founder and CEO, Elon Musk, who in October described the Model 3 as being “deep in production hell.”

On Wednesday, Musk told analysts that “by far the biggest problem” holding up production had been in the battery module assembly line, where he said a subcontractor had “really dropped the ball,” causing Tesla to have to rewrite “all of the software from scratch.”

In a conference call from the Nevada Gigafactory – “I move my desk to wherever the biggest problem is at Tesla,” Musk told analysts – the CEO said he had had reallocated many of the company’s best engineers to fix the problem, and was, himself, “personally on that line, in that machine,” alongside chief technology officer JB Straubel.

But engineers are not the only resource Tesla has had to reallocate to get Model 3 production back on track. The company has burned through a startling $US1.42 billion in cash in Q3 – up from the $1.16 billion in Q2 – as it spends heavily getting things back up to speed at both its auto assembly plant and at the gigafactory.

Tesla also reported its largest ever quarterly loss, on Wednesday – a net loss of $619.4 million, or $3.70 per share, compared with a profit of $21.9 million, or 14 cents a share a year earlier – and said it was cutting production on its Model X and Model S vehicles to focus on ramping up Model 3 production.

So how far off-track are they with the Model 3? In response to a question from a Morgan Stanley analyst – “How hot is it in hell right now? Is it getting hotter, or less hot?” – Musk put it this way…

“Let’s say level nine is the worst, ok? We were on level nine. We’re now on level eight. And I think we’re close to exiting level eight.

“I feel really pretty optimistic right now. If you talked to me three weeks ago, I would have been quite pessimistic, and I was, sort of, quite down in the dumps.

“It’s pretty obvious what we need to do, it’s just a matter of working to get there. We’re working seven days a week to do it.

“We’re on it; we’ve got it covered; it’s just going to take three months longer than we expected.”

On a more positive note for Tesla’s electric vehicle division, the company passed a major milestone this quarter, notching up int 250,000th vehicle delivery.

“Five years ago we had only delivered 2500 cars, so the Tesla fleet has grown by a factor of 100 over five years,” Musk told analysts.

“I would expected five years from now (for delivery growth) to be an order of magnitude, at least,” he added.

For the quarter, Tesla delivered a total of 26,137 cars all up, 25,915 of them its luxury Models S and X. That puts it on track for about 100,000 deliveries of Models S and X in 2017, the company said, which was an increase of 30 per cent on 2016.

The company also opened 18 new store and service locations across the quarter, adding to a total of 318 globally, and 126 new supercharger stations in Q3, adding to a total of more than 1,000, and 7,000 supercharger connectors worldwide. In Shanghai, Tesla opened one supercharger station with 50 connectors, alone.

Also making headlines was the company’s dismissal of 700 staff, the reporting of which Musk said had been “ridiculous,” noting that the cull was a result of annual performance reviews, out of which only 2 per cent of staff didn’t make the grade.

But he also acknowledged that Tesla held its staff to an “extremely high standard,” which he said it need to do, in order to compete against much larger companies.

“You can’t be the little guy… and have same (staff) ability,” he told analysts. “The little guy has got to have a heck of a lot more skills.”

Looking forward, the company is also busy preparing for the November 16 unveiling of the Tesla Semi, which it says “will demonstrate just how compelling electric drive will be for the global trucking industry. We look forward to showing you something truly incredible.”

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