Following a CNBC story that Tesla (TSLA -3.55%) called "misleading," investors received an early update on Model 3 production. The electric-car maker denied the article's claims and asserted that Model 3 production is on track with its previous forecasts.
Helping alleviate concerns of another potential delay in Model 3 deliveries, Tesla's update on the important vehicle's production provides investors some hope amid "production hell." Here's what investors should know.
Tesla vehicle production. Image source: author.
Refuting CNBC's story
Investors should "expect more Model 3 delays" -- at least according to "a number of current and former Tesla employees," CNBC said on Thursday. These sources reportedly told CNBC that battery production at Tesla's Gigafactory is "worse than the company has acknowledged."
More specifically, some of CNBC's sources said that as late as mid-December, "Tesla was still making Model 3 batteries partly by hand."
But Tesla said this wasn't news. In a statement to the press, Tesla noted, "Until we reach full production, by definition some elements of the production process will be more manual."
Furthermore, Tesla pointed to commentary from management during the company's most recent earnings call that detailed the need for manual labor in battery production. CEO Elon Musk was blunt about these manual processes in the company's third-quarter earnings call (via a Thomson Reuters transcript) in November:
We're throwing a sheer amount of people at replacing machines. And then occasionally, there's like some part of a production manufacturing process where the machine is probably kind of like broken, and then we have to kind of bypass to a manual operation.
During the call, both Musk and CTO JB Straubel admitted it would continue to be this way until they fixed the highly automated processes involved. "[I]t's really inefficient because this thing is really not designed for a manual bypass to your broken machine or a machine when the software is not right or whatever the case may be," Musk explained.
The last update on Tesla's quarterly delivery and production was actually on Jan. 3, after the mid-December time period CNBC cited. At the time, Tesla said it had made "major progress addressing Model 3 production bottlenecks, with our production rate increasing significantly toward the end of the quarter." Indeed, it said it finished the quarter at a weekly production run rate of over 1,000 vehicles per week.
As far as CNBC's sources who said investors should expect more delays, Tesla said in its statement that this was blatantly wrong:
This is an extremely misinformed and misleading article. To be absolutely clear, we are on track with the previous projections for achieving increased Model 3 production rates that we provided earlier this month.
Why this is great news
The fact that Tesla is "on track" with its previous projections for increased Model 3 is encouraging since the company has already delayed Model 3 production targets twice. The automaker was first aiming to achieve a production rate for Model 3 of 5,000 units per week by the end of 2017. This target was then pushed to the end of Q1, and finally to the end of Q2.
Model 3. Image source: Tesla.
But what's most notable about this update is exactly what being "on track" with its most recent Model 3 production targets entails. Tesla said in its Jan. 3 update on deliveries and production that it expected to end its first quarter at a weekly production rate of about 2,500 Model 3 units -- an aggressive target that would likely more than double Tesla's combined Model S and X weekly production. Being on track with this ambitious target nearly a month into its first quarter bodes well for the company's likelihood of achieving it.
Tesla's next target for Model 3 production is an incredible 5,000 units per week. In its Jan. 3 update, Tesla said it intended to achieve this production rate by the end of Q2.
Ultimately, what was initially concerning news about another potential delay has now morphed into one of the most optimistic reports on Model 3 production yet: Tesla is finally on track to ramp up production to levels that are unprecedented for the company. A Model 3 production rate of 2,500 cars per week may be just around the corner.
