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Abu Dhabi, UAEMonday 25 June 2018

Tesla in big push to boost Model 3 output

Delivery hub was packed with people on Saturday evening as the last hours of the quarter drew to a close

A Tesla Model 3 saloon. The firm has temporarily stopped production of the car. Joe White/Reuters
A Tesla Model 3 saloon. The firm has temporarily stopped production of the car. Joe White/Reuters

With pressure escalating after one of the worst weeks in its almost 15-year-history, Tesla raced to manufacture and deliver its mission-critical Model 3 saloon to burnish the numbers it’s about to report to rattled investors.

Tesla’s Fremont, California, delivery hub was packed with people on Saturday evening as the last hours of the quarter drew to a close. Red couches and tall white tables were set up outside, a DJ played music and a truck selling Vietnamese food was on hand. Behind the scenes, a company that has struggled to figure out how to mass manufacture cars had implored workers to get production on track and disprove their doubters.

The sceptics are getting louder after the past few days. The electric car maker led by Elon Musk has come under regulatory scrutiny for the second crash this year involving Tesla’s driver-assistance system Autopilot, the latest of which resulted in a fatality. Moody’s Investors Service downgraded the company’s credit rating further into junk, citing the combination of production problems and mounting obligations that could necessitate a more than $2 billion capital raising soon to avoid running out of cash.

“Tesla is testing our patience,” Gene Munster, a managing partner at venture capital firm Loup Ventures who has been bullish on the car maker, wrote in a report after the company announced it would have to repair a power-steering issue with the Model S on Thursday. “When we heard the recall news tonight we asked ourselves, do we still believe in the story?”

Mr Musk risked coming off as tone deaf to investor concerns, sending a series of April Fool's Day tweets to joke that Tesla had gone bankrupt. The chief executive first unveiled the Model 3 on March 31, 2016, and Tesla’s manufacturing woes have kept hundreds of thousands of consumers who placed $1,000 deposits for the saloon waiting.

From the looks of social media posts by customers who took delivery of their Model 3 over the holiday weekend, Tesla still maintains an army of true believers who are staying put in line for their car.

“Two years ago to the day, I put down a deposit on a car I’d never even seen before,” Amanda Bell, a software developer in Nashville, wrote on Saturday on Twitter. “Today, I picked up my dream car.”

Ms Bell, 26, said she likes that Tesla’s cars have the ability to roll out new features via software updates.

Since starting Model 3 deliveries last July, Tesla has pushed back production goals for the car several times, citing issues with battery output and automating its assembly lines. The company forecast back in January that it was likely to end the first quarter making about 2,500 units of the car a week.

Tesla reports production and deliveries results within a few days of each quarter ending. Earlier on Sunday afternoon, Mr Musk tweeted to tease “important news in a few hours” then sent the tongue-in-cheek posts about Tesla going bankrupt.

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Bloomberg is tracking the Model 3 rollout with an experimental tool that estimates production using vehicle identification numbers. The tracker estimates that Tesla is building about 1,190 Model 3s a week as of Sunday, although that figure may not capture any last-minute burst in output.

Analysts are projecting total Model 3 deliveries for the quarter of about 8,800 units, the average of seven estimates. Bloomberg’s tracker estimates Tesla may have produced almost 9,300 of the saloons in the quarter.

The tracker shows an increase in production in the past few weeks as Tesla invited a limited number of workers from the Model S and Model X factory lines to volunteer to work on the Model 3. Heading into the final week of March, Doug Field, senior vice president of engineering, urged workers to safely ramp up output to more than 300 vehicles a day and to “prove a bunch of haters wrong”.

Barclays analyst Brian Johnson has warned clients to watch out for a potential “burst rate bear trap” in which Tesla beats Wall Street’s lowered projections for Model 3 deliveries. He estimated Tesla was producing 1,500 to 1,700 units of the Model 3 each week.

“We think it’s possible Tesla may have stockpiled batteries amid Fremont downtime, allowing production to be higher in the final week,” Mr Johnson wrote in a report on Thursday. “Any such ‘beat’ is unlikely to be sustainable, and questions remain on Tesla’s ability to sustainably reach” its goals.

Tesla faces a pile-up of other challenges, including scrutiny of Autopilot. The National Transportation Safety Board is investigating a fatal Model X crash that occurred March 23 in California involving a driver who had engaged the driver-assistance system.

Tesla published a blog post late on Friday that said the driver did not have his hands on the steering wheel for six seconds before colliding with a highway divider, despite receiving several visual warnings and one audible warning earlier.

The NTSB is “unhappy” that Tesla is disclosing information during an active crash investigation, spokesman Chris O’Neil said on Sunday. The agency will look into all aspects of the incident, including the driver previously raising concerns about the Autopilot system, he said.

“This is another potential illustration of the mushy middle of automation,” said Bryant Walker Smith, a University of South Carolina law professor who studies self-driving cars. Partial automation systems such as Tesla’s Autopilot “work unless and until they don’t” and there will be speculation and research about how safe they are, he said.

Tesla’s nightmare week also included a Moody’s downgrade of the company’s corporate family rating to B3, six levels into junk, which sent its unsecured bonds to all-time lows. Late on Thursday, the car maker recalled all 123,000 Model S cars built before April 2016 to retrofit a power-steering component.

Still, Mr Munster said the answer to the rhetorical question raised in his report whether Loup Ventures still believes in Tesla – is yes.

“The company is uniquely positioned to capitalise on a dramatic shift” in the auto industry, he said. He added that he thinks Tesla will “innovate in both EV and autonomy, and usher in a new paradigm of manufacturing efficiencies”.