Tesla is scrambling to ramp up production to meet demand for its new Model 3.
INTERNATIONAL - Tesla has not figured out how to overcome manufacturing challenges that threaten its viability, with battery factory-line glitches delaying production of its cheapest car.

The electric carmaker will not build 5000 units per week of its Model 3 sedan until sometime in March, three months later than planned.

“I have to tell you I was really depressed about three or four weeks ago,” chief executive Elon Musk said on a call with analysts on Wednesday after Tesla reported a record quarterly loss and cash burn. Musk downplayed the long-term implications of the delays. “In the grand scheme of things,” Musk said, “this is a relatively small shift.”

Investors were not so sure: Tesla shares traded down 5.1percent to $304.70 as of 7.45am in New York, before the start of regular trading.

A Tesla Model 3 sedan is seen in this undated handout image as the car company handed over its first 30 Model 3 vehicles to employee buyers at the company's facility in Fremont

The setbacks lengthen the wait for hundreds of thousands of customers waiting for their Model 3 and extend the pay-off period for the billions of dollars the company has spent to expand.

The manufacturing snags will embolden sceptics who’ve doubted the company’s ability to quickly reach mass production, a feat the youngest US carmaker is trying to pull off for the first time with a car that starts at $35000.

“We left the call frustrated with the lack of transparency from Tesla management,” Jeffrey Osborne, a Cowen analyst who recommends selling the shares, wrote.

“Elon Musk needs to stop over-promising and under- delivering, and the board should rein in a chief executive who publicly shares his aspirational goals that have rarely been hit.”

Tesla burnt $1.42billion in cash in the third quarter. The Palo Alto, California-based carmaker is spending heavily on both its car assembly plant and at its battery gigafactory, contributing to an adjusted loss of $2.92 per share, worse than analysts had estimated.

FILE - This Oct. 24, 2016, file photo shows Tesla Model S on display in downtown Los Angeles. Tesla Motors fired hundreds of workers after completing its annual performance reviews, even though the electric automaker is trying to ramp up production to meet the demand for its new Model 3 sedan. The Palo Alto, California-based company confirmed the cuts in a Saturday, Oct. 14, 2017 statement, but didn't disclose how many of its 33,000 workers were jettisoned. (AP Photo/Richard Vogel, File)

The main constraint holding back Model 3 output has been on the assembly line that packages battery cells at Tesla’s gigafactory in Nevada, which Musk blamed in part on a subcontractor that “really dropped the ball”.

Software had to be rewritten from scratch, and mechanical and electrical elements of one area of the plant had to be redone.

Speaking from the plant, he also faulted himself for picking the wrong subcontractor. He recalled being on the assembly line at 2am on a Sunday to help diagnose robot calibration issues and said work was being done seven days a week to solve the problems vexing the giga- factory.

Just three months ago, Tesla said it would make 10000 Model 3 cars a week in 2018. But during the call with analysts, Musk hesitated to reaffirm that guidance, saying more information about the outlook for next year would come after the fourth quarter.

The changes to forecasts of how many Model 3 sedans will be built are “likely to result in a significant reduction in production expectations” and increase concerns about Tesla’s ability to generate cash, Ryan Brinkman, a JPMorgan analyst, said in a note.

Musk and chief financial officer Deepak Ahuja wrote in a letter to shareholders that it was difficult to predict how long it will take to resolve all the bottlenecks, or when new ones will emerge.

Some of Tesla’s manufacturing lines, including those for drive units, seats, paint and stamping, have the ability to make more than 1000 cars per week during “burst builds of short duration”, they wrote. 

- BLOOMBERG