Battery assembly problems are slowing the production ramp-up of the Tesla Model 3. File photo: Tesla

San Francisco, California - Tesla has pushed back its target for volume production on the new Model 3 sedan by about three months, saying it was difficult to predict how long it would take to fix all the production bottlenecks.

The company, led by Silicon Valley entrepreneur Elon Musk, faces a crucial test in its growth strategy as it ramps up production of the Model 3, its new sedan that starts at $35 000 (R573 000), about half the price of its flagship Model S.

Although Tesla has made inroads among luxury car buyers with the advanced technology and innovative design in its Model S sedan and Model X SUV, it is the Model 3 on which its long-term viability rests. The company continues to burn through cash, and spent $1.1 billion (R18 billion) in capital expenditures in the third quarter of 2017.

It now expects production of the Model 3 to reach 5000 a week by late in the first quarter of 2018, from its original target date of December.

Battery problems

Tesla said the main constraint was its battery module assembly line at its Nevada Gigafactory, where the company had to redesign part of the production process.

"I was really depressed about three or four weeks ago," Musk said, adding that he is now optimistic because it is clear what needs to be done. "We are on it, we've got it covered," but it will take a few months longer than expected, he said.

Tesla made just 260 Model 3 sedans in the third quarter due to what it called "production bottlenecks". It had planned to build more than 1500. Production delays mean postponed income from sales, and could also worry the more than 500 000 customers who have put down a refundable deposit.

Cash-flow problems 

Tesla could soon face major cash-flow problems, given the Model 3 delays, a possible factory in China, and plans to develop other vehicles, including an electric heavy duty truck.

But Musk said he did not expect any significant capital expenditure in China until 2019, adding that he envisioned a factory producing at least 200 000 vehicles a year for the Chinese market.

Tesla's continued need for cash is exacerbated by Musk's insistence on vertical integration, such as making its own batteries and selling cars directly to customers. That, industry experts say, is among the reasons Tesla is nowhere close to its aggressive goal of building 500 000 vehicles annually by 2018, most of them Model 3s.

Tesla delivered 26 150 vehicles in the third quarter of 2017, an improvement of only 4.5 percent over the same period in 2016.