said the Model 3 is in "production hell," and the company's Q3 2017 earnings report all but proves it.
Tesla burned through $1.4 billion dollars in the third quarter as it attempted to ramp up production of its affordable Model 3 electric sedan. The company reported an adjusted loss per share of $2.92, higher than Thomson Reuters estimated at $2.29. That said, its $2.98 billion revenue was a bit higher than Thomson Reuters' estimate of $2.95 billion. Tesla's reported $671 million quarterly loss is its largest ever, or 76 percent of what it lost in all of 2016.
Let's see how that all shook out in more practical terms.
Model 3 production woes
Tesla's Model 3 website originally envisioned a Model 3 production capacity of 5,000 vehicles per week by the end of 2017, but the company has pushed that projection back to the first quarter of 2018 while it deals with bottlenecks. Musk, on a shareholder call, estimated this ramp to be complete late in Q1, likely March.
Tesla claimed the primary Model 3 production bottleneck is battery module assembly, which takes place in the company's Gigafactory in Nevada.
The company once again stressed that the car itself is not hard to build, but rather, it's the system of building the cars that's providing the issues. Tesla wants to automate as much of the process as possible, even more so than its other vehicles. While that's good for keeping personnel costs low, that introduces even more complexity into a schedule that may never have been as set in stone as it appeared.
Other lines, such as seat assembly and final vehicle assembly, are demonstrating production rates between 500 and 1,000 vehicles per week "during burst builds of short duration."
Even with all these stories of layoffs and production bottlenecks, some of which Musk considers "ridiculous," Tesla claims that global net reservations for Model 3 have grown "significantly" in the third quarter.
Deliveries up, margins down, production expected to dip
Tesla delivered 25,915 Model S hatchbacks and Model X SUVs in Q3 2017, a roughly 4.5 percent improvement over Q2's roughly 22,000 deliveries. Used car sales were up, as well.
Tesla delivered just 222 Model 3
in Q3. Back in Q2, Tesla estimated that it would produce 1,500 Model 3s in Q3, and while Tesla did not make mention of any outstanding pre-delivery supply, it's safe to assume that there aren't 1,279 Model 3s sitting in a Fremont lot waiting for delivery right now.
While deliveries went up, non-GAAP margins dropped from 25 percent in Q2 2017 to 18.7 percent in Q3. Tesla says it was expecting this and attributed it to an increase in Model 3 manufacturing costs, as well as Model S and Model X price adjustments, which came alongside some trim discontinuation.
Tesla also finally experienced a slowdown in ZEV credit sales. Tesla sold $139 million of these credits in Q3 2016, and $100 million just last quarter, but this quarter's ZEV sales totaled less than $1 million.
These credits are given to automakers that build zero-emissions vehicles, and they can be sold to automakers that lack a sufficient amount of credits (because they're too busy building, say, Hellcats). As the ZEV market expands with hybrids, plug-ins and EVs, it was expected that Tesla's credit sales would dry up, and other quarters haven't been great, so this figure could well rise again in the next quarter.
Looking forward, Tesla expects to produce approximately 10 percent fewer Model S and Model X vehicles in Q4, because some of its personnel will be diverted to Model 3 production. Overall, the company hopes Model S and Model X deliveries will reach about 100,000 for the year.
Tesla's stock ended the day at $321.08, down some 3.15 percent on the day. As of this writing, shares are down to $306.97 in after-hours trading.