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Tesla's Model 3 Production Delays: Finally in the Rearview Mirror?

By Motley Fool Staff - Feb 26, 2018 at 3:42PM

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Model 3 production is finally gaining traction.

On this segment from Industry Focus: Energy, analyst Sarah Priestley is joined by Motley Fool contributor Daniel Sparks to discuss how after several previous delays for the important vehicle's production ramp, Tesla (TSLA 4.53%) said it was on track with its most recently announced production targets for Model 3 in the fourth quarter. The electric-car specialist is hoping to produce 2,500 Model 3 units by the end of the current quarter.

A full transcript follows the video.

This video was recorded on Feb. 22, 2018.

Sarah Priestley: Quarterly deliveries hit a record high. The constant commentary that you've seen around Tesla is its production misses. Which, it continued to miss production targets, but it's hit a record high quarterly delivery of 30,000 units, that was up about 30%. But this was driven by the Model S and X. What about the Model 3?

Daniel Sparks: The Model 3, the thing to look at here is, like you said, they've been missing production targets. The last time they announced they were pushing a production target for the Model 3 back was alongside their fourth quarter delivery announcement, which happened about three days into 2018. So investors, of course, were looking to see if Tesla would push it back again, which would be a third time. For some context, they were initially expecting to ramp up Model 3 production to 5,000 units per week by the end of last year, and they royally missed that target, and initially pushed that target back to the end of the first quarter. Then, earlier this year when they announced deliveries, they pushed that target back to the end of the second quarter.

And Tesla did actually maintain that target when they announced earnings, even though they took place over a month into Tesla's first quarter. So, that was encouraging, to see that they're still aiming for a weekly production target of Model 3 of 2,500 units by the end of this quarter, which of course is just over a month away now, then 5,000 units per week by the end of Q2. They did maintain that. That was probably the one good news about Model 3 we've seen so far. Of course, just because they maintained it, with these delays in hindsight, it's still something investors should watch closely. We really can't take Tesla at their word yet.

Priestley: [laughs] Absolutely, yeah, if there's one thing that we've learnt so far. Just to recap for anybody listening that's not familiar, Tesla announced the Model 3, I think it was almost two years ago, it's the company's affordable mass-market electric vehicle, and I think the base model costs $35,000. It's supposedly gotten around 500,000 reservations during the first year that they announced it. So, potentially hugely successful, but as you talked about, Daniel, it's really if they can crack that production. 2,500 Model 3s every week by the end of this quarter is going to be a huge ramp up for them. I've seen some estimates that have pegged average production at the end of last month at 1,050 per week. You don't know. It's hard to gauge. You don't know necessarily where these analysts are getting those figures from, but it'll be interesting to see if they actually manage it.

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