Tesla producing far fewer Model 3s than Elon Musk promised, extending wait time

Marco della Cava | USA TODAY

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SAN FRANCISCO — Your Tesla Model 3 delivery wait just got a little longer.

Tesla said late Wednesday it had delivered 29,870 electric cars in the last quarter of 2017, which included just 1,550 of the lower-priced Model 3 sedans. Overall deliveries were up from the 25,336 vehicles it shipped in the third quarter, but the all-important Model 3 numbers were well below what analysts anticipated and what Tesla CEO Elon Musk once predicted.

More than 400,000 people have put down $1,000 deposits for the right to order a $35,000-and-up Model 3, whose success many analysts say is critical to Tesla's survival as a mass-market manufacturer.

The Palo Alto-based automaker annually sells around 100,000 high-end Model S and Model X sedans, whose price tags can easily top $100,000. The Model 3 promises to bring Tesla's all-electric technology and panache to a wider market — if it can make enough cars.

Production has been the hangup. In order to fill all those Model 3 pre-orders, Musk initially had promised that his company would make 5,000 Model 3 units per week by the end of 2017, and around 10,000 a week — or around 500,000 Model 3's a year — by the end of 2018. Wednesday's delivery report showed it wasn't even able to hit the weekly target in three months.

Beyond the opportunity cost of tying up $1,000 in a Model 3 deposit, impatient Tesla wait-listers increasingly can consider a number of electric options from traditional automakers such as General Motors, BMW and others who promise to capitalize on Tesla’s trend.

Michelle Krebs, executive analyst for Autotrader, said that Tesla fans might be patient if early Model 3s prove to be faultless status symbols for the EV masses.

“Tesla would have been better served had it not announced such lofty plans for its production ramp-up," Krebs said. "The company has now said it is focused on quality versus volume, which is the right focus. The Model 3 must be right in terms of quality. Ramping up production levels with a flawed product is foolish.”

In a statement, Tesla officials said the company continues to "focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time," and anticipates ending the first quarter at a weekly rate of about 2,500 Model 3 vehicles, and wrapping up the second quarter making 5,000 Model 3s per week.

Tesla supported that projection by noting that in the last seven days of the December quarter, the company made 793 Model 3s after addressing unspecified production issues. The company also said 860 Model 3s were in transit to customers at the end of the last quarter and would be booked as first quarter deliveries. All told, Tesla built 2,425 Model 3s in the last three months of the year.

Analysts at Evercore ISI had said before the report that finishing the year with a weekly run-rate of about 1,000 units a week would be positive. Between 750 to 1,000 units weekly "would be par."

Tesla is slowly building its production output, while still falling far short of its own forecasts. In the third quarter, it made 220 Model 3s. That was shy of the 1,500 new-model units Tesla had expected to produce in the quarter, a gap company officials attributed to those same "production bottlenecks."

Musk was typically candid at the official unveiling of the Model 3 at Tesla's Fremont plant last July, saying that the company was in "production hell" with its new mass-market model.

Not helping matters were hundreds of layoffs at the Fremont plant, which the company said was a culling related to poor performance reviews and not a staffing cutback.

And while Musk clearly understanding how vital the Model 3 is to Tesla's survival, he has chosen to simultaneously ramp up other ambitious plans that include rocketing to Mars, starting The Boring Company to build tunnels for a high-speed hyperloop transportation network, taking orders for an electric Tesla Semi, and offering a sneak peak of the forthcoming Tesla Roadster replacement.

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