December 09, 2018

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Tesla Reports Progress on Model 3 Car Production

Tesla Reports Progress on Model 3 Car Production
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Over the last two months, Tesla has faced no shortage of distractions.

Elon Musk, its chief executive, announced on Twitter that he was going to take the company private, backed down, seemed to smoke marijuana in a podcast interview and was accused in a lawsuit by the Securities and Exchange Commission of misleading investors, a case he settled over the weekend.

But through it all, Tesla managed to produce cars in high volume. On Tuesday, it reported a 50 percent jump in production in the third quarter from the preceding period. Over all, the company made 80,142 cars, of which 53,239 were Model 3 sedans.

Model 3 output nearly doubled from the previous quarter — a key achievement because that is the car Mr. Musk is counting on to drive Tesla to profitability.

The electric-car maker delivered 83,500 vehicles to customers. Of those, 55,840 were Model 3s, about three times as many as in the second quarter.

Nevertheless, the company faces many challenges, one of which is: Can it make money?

Mr. Musk, who will step aside as chairman as part of his settlement with the S.E.C., has said his goal is for Tesla “to be profitable and cash-flow positive for every quarter going forward.”

In the 15 years since it was founded, Tesla has never reported an annual profit. Mr. Musk based his forecast for profits in the third and fourth quarter on production of at least 5,000 Model 3s a week. The company said it fell short of that in the third quarter, averaging about 4,100.

In previous quarters, the company’s costs increased as it made more cars, wiping out any chance at getting into the black. Tesla is expected to report its third-quarter earnings later this month.

David Whiston, an analyst at Morningstar, said that Tesla could report a profit for the quarter but that he was not convinced that it would. “They’re making more cars,” he said, “but it’s hard to say if they are making money on every one.”

In its Tuesday report, Tesla made no third-quarter financial forecast. On Sunday, Mr. Musk sent an email to employees saying the company was “very close to profitability.”

Perhaps even less certain is whether Tesla can continue making money one quarter after another. Next year, it is supposed to start making a more basic version of the Model 3 priced at $35,000, and Mr. Musk has acknowledged that Tesla would lose money on that car if the company produced it now.

“It’s great if they’re profitable in the third quarter, but what about 2019 and 2020?” Mr. Whiston said. Tesla plans to build new factories and develop several new vehicles, all of which will cost money, he noted, and “it costs a lot of money to grow.”

The increase in production and deliveries is a rare bit of good news for a company that has been shaken by a succession of unsettling developments. The S.E.C. case arose from Mr. Musk’s tweet on Aug. 7 in which he said he planned to turn Tesla into a private company at $420 a share and had “funding secured,” a plan that turned out to be less fleshed out than he suggested.

The S.E.C. is still looking into Mr. Musk’s past claims about the company’s production goals.

While Tesla has increased production of Model 3s, it has run into a new problem: It can’t seem to deliver all the cars it is making to its customers. Mr. Musk has called this “delivery logistics hell.”

[Read more: A group of internet sleuths is tracking clues to Tesla’s production and delivery issues.]

An important test will be whether Tesla can clear up its shipping issues in the fourth quarter, analysts said.

“The real question now is if Tesla can really sustain this pace, particularly in light of the delivery issues the company has faced recently,” said Jeremy Acevedo, manager of industry analysis at Edmunds, an auto-data firm.

Tesla reported that it had 8,048 Model 3s and 3,776 other cars in transit to customers at the end of the third quarter.

“With production stabilized, delivery and outbound vehicle logistics were our main challenges during Q3,” the company said in a statement. “We made many improvements to these processes throughout the quarter, and plan to make further improvements in Q4, so that we can scale successfully.”

The delivery problems could hurt Tesla’s bottom line, because the company can book revenue only when it puts cars into customers’ hands.

The automaker needs more revenue because it uses up nearly $1 billion in cash almost every quarter. At the start of the third quarter, Tesla had $2.2 billion in cash, but it owed suppliers $3 billion. It also had about $11 billion in debt on its balance sheet.

In its production update, Tesla also noted “the headwinds we have been facing” as a result of the trade tensions between China and the Trump administration. Tesla vehicles shipped to China are now hit with a tariff of 40 percent, the company said.

China is the world’s largest market for electric vehicles.

“Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55 percent to 60 percent cost disadvantage compared to the exact same car locally produced in China,” the company said.

Tesla is in the beginning stages of planning a factory in Shanghai.

A version of this article appears in print on , on Page B5 of the New York edition with the headline: Through All of the Turmoil, Tesla’s Production Goes Up. But Will Profits Follow?. Order Reprints | Today’s Paper | Subscribe





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