Tesla (TSLA 2.84%) and Elon Musk's most ardent fans haven't lost faith in his visionary strategy, but some major cracks started to form in 2017. Tesla didn't hit its own production goals and seemed to lose sight of the newly acquired SolarCity's business altogether. But the worst development might have been competitors taking Tesla's early lead in autonomous driving; technology the company championed with the Model S.
Here's a look at why I think 2017 was a year Tesla investors would like to forget operationally.
Image source: Tesla.
Model 3 delays
2017 was supposed to be a milestone year for Tesla in a number of ways, but the biggest was supposed to be mass production of the Model 3. According to Tesla's own projections, the company was supposed to produce 5,000 Model 3s per week by the end of 2017. Instead, it produced 2,425 in the entire quarter.
Elon Musk now says that Model 3 production will hit 5,000 per week by mid-2018, but the delay will be harmful to Tesla's finances and business. Tesla is now burning over $1 billion annually on operations at the same time that it's spending billions on capital expenses to build manufacturing plants.
TSLA Cash from Operations (TTM) data by YCharts
These trends are bad because competitors are coming for Tesla's electric vehicle lead. General Motors' (GM 0.08%) Chevy Bolt sold 23,297 units in 2017, beating the Model X (21,315) and nearly surpassing the Model S (27,060). More EVs are coming in 2018 and if Tesla can't get Model 3 production up to 5,000 units per week it could fall behind more experienced rivals.
Losing SolarCity's enormous lead in solar
Remember when Elon Musk engineered the acquisition of SolarCity by Tesla, saying it was bringing together two companies that should have been together all along? That was just over a year ago and since Tesla bought SolarCity there's been very little positive news about solar. It seems like he forgot the deal happened at all.
Tesla has laid off thousands of SolarCity's workers and doesn't seem interested in keeping its installation business competitive with other installers. After having a dominant market share of over 30% for years, Tesla has now fallen behind Sunrun (RUN +0.71%) in market share and may fall behind Vivint Solar (VSLR +0.00%) and SunPower (SPWR +0.00%) if it doesn't start turning the business around soon.
What we do know is that late in 2017 Tesla and Panasonic started production of solar modules and solar roof tiles in Buffalo, New York. This could lead to a cost advantage in the U.S. and renewed excitement about solar, but proof will be in the results, which weren't good in 2017.
Tesla falls behind in autonomous vehicles
Arguably the most disappointing revelation of 2017 is that Tesla is falling behind on autonomous vehicle technology. As GM, Ford (F +0.40%), Alphabet (GOOG +1.92%)(GOOGL +1.93%), and more than a dozen other competitors pour billions into self-driving technology Tesla has had to focus on Model 3 production issues. According to Navigant, this has left Tesla behind every competitor in terms of execution and nearly all of them in terms of strategy.
It's not clear today that Tesla is going to be able to remedy its weak position in self-driving vehicles given its current strategy. Tesla isn't using LiDAR that's become a standard technology for most competitors, relying instead primarily on visual cameras to control a vehicle's movement. It also doesn't have the billions in capital to invest in self-driving technology like GM, Ford, and even Google appear willing to do. This may be an area where Tesla simply falls behind rivals further in 2018.
Tesla's stock still doesn't care
Despite these operational problems, Tesla's stock continues to go up, so traders don't seem worried at the moment. But fundamentally I think Tesla needs to be an industry-leading manufacturer, a technology company, and integrated energy platform to live up to its current valuation. 2017 didn't show a lot of progress on that front.
