Tesla’s First Mass-Market Car, the Model 3, Hits Production This Week

Source: By NEAL E. BOUDETTE, New York Times • Posted: Wednesday, July 5, 2017

Tesla’s Model 3, which will sell for around $35,000. It is a critical test of the company’s plan to become a producer of mass-market electric cars. Justin Pritchard/Associated Press

Tesla’s long-awaited mass-market electric car will begin rolling off the assembly line this week. But even as it moves ahead, the automaker is encountering challenges to its ambitious plans for growth.

On Monday, it acknowledged that it had experienced a “severe shortfall” in production of 100-kilowatt battery packs that use new technologies and are made on new assembly lines.

As a result, Tesla’s output of 25,708 cars in the second quarter barely exceeded its first-quarter production, though it was a 40 percent increase from a year ago.

Until June, the supply of battery packs was about 40 percent below demand, Tesla said, though supplies improved last month.

The hiccup in production appeared to have unsettled investors. Tesla stock fell $8.99, or 2.5 percent, to $352.62.

Tesla said production of its first midpriced car, the Model 3, would begin on Friday, two weeks earlier than planned, with the first deliveries on July 28.

Elon Musk, Tesla’s chief executive, said late Sunday on Twitter that production would increase quickly, with 100 Model 3s produced in August and 1,500 or more in September. He said that he expected the company to be able to produce 20,000 a month starting in December.

The Model 3 is a critical test for Mr. Musk and his ambitious plan to turn Tesla into a producer of mass-market electric cars.

Until now, the company has manufactured luxury cars in relatively small numbers, typically selling them for $90,000 or more. In 2016, it made about 85,000 vehicles. General Motors, by contrast, produced more than nine million cars and light trucks.

The Model 3 will be priced around $35,000. Mr. Musk envisions it reaching a much wider range of customers and has said he expects it to push Tesla’s output to 500,000 cars a year in 2018.

In June, Mr. Musk told shareholders that Model 3 production was set to begin in July at the company’s assembly plant in Fremont, Calif., although he stopped short of saying when the car would be available in volume.

Mr. Musk has said Tesla is working to automate its assembly plant further to increase Model 3 output. He said at the shareholder meeting that the company was beginning to consider additional assembly plants.

“There is no room at Fremont,” he said. “We are bursting at the seams.”

Tesla has had discussions with Chinese officials about opening a plant near Shanghai. China accounted for about 15 percent of Tesla’s revenue in 2016.

To prepare for the addition of the Model 3 to its lineup, Tesla built a huge, $5 billion factory in Nevada to produce batteries for its electric cars. Tesla has also bolstered its coffers. This year, it raised $1 billion through offerings of stock and debt. A Chinese internet giant, Tencent Holdings, acquired a 5 percent stake in the company.

The company needs the extra capital because it continues to post losses in most quarters. In the first quarter of this year, Tesla lost $397 million, compared with a loss of $282 million in the period a year earlier, but its revenue more than doubled, to $2.7 billion.

Even with the swoon in shares Monday, investor optimism about the Model 3 has pushed Tesla shares up about 65 percent this year. The company has a market value of $58 billion, about $4 billion more than G.M. and $12 billion more than Ford Motor.