What happened

Shares of Tesla (NASDAQ:TSLA) fell as much as 8.9% on Thursday, in the aftermath of the company's third-quarter earnings release. The stock is down about 7% at the time of this writing.

The stock's decline likely reflects disappointment in the company's wider-than-expected loss per share and an approximately three-month delay for Model 3 production. Tesla reported a non-GAAP loss per share of $2.92, worse than its non-GAAP gain per share of $0.71 in the year-ago quarter and worse than a consensus analyst estimate for a loss of $2.31.

Tesla's first 30 Model 3 units ready for delivery

Tesla Model 3 units ready for delivery. Image source: Tesla.

So what

Tesla's revenue and vehicle sales were up in Q3, rising about 5% and 30% year over year, respectively, compared to the year-ago quarter. But production bottlenecks for Model 3 weighed on results and guidance.

High initial production costs for Model 3 combined with limited-volume production meant the company's non-GAAP automotive gross margin fell from 25% in Q2 to 19% in Q3. This was the primary reason for Tesla's wider loss.

In addition, worse-than-expected Model 3 production during the quarter, primarily due to a bottleneck in its battery module assembly line at its Gigafactory, meant Tesla only produced about 260 Model 3 units during the quarter. As a result, Tesla now expects to achieve its production target of 5,000 Model 3 units a week in "late Q1" instead of by the end of the year.

What now

Despite Tesla's Model 3 production challenges, the company said it was confident it can rapidly ramp up Model 3 production, albeit about three months behind schedule.

Management explained:

[T]he Model 3 production process will be vastly more automated than the production process of Model S, Model X or almost any other car on the market today, and bringing this level of automation online is simply challenging in the early stages of the ramp. We continue to make progress resolving early bottlenecks related to these issues, and there remain no fundamental problems with our supply chain or any of our production process.