Tesla's Greatest Challenge Yet

The pioneering electric car company Tesla Inc (NASDAQ: TSLA) has suffered a number of public challenges since the beginning of 2018. It’s high profile CEO, Elon Musk, calls the period a production hell. He is known for pulling all-nighters on the factory floor and sleeping in the office. There are many things plaguing Tesla these days. But the most important thing on Musk’s mind these days is solving the production delays for the new Tesla model 3 sedan.

The model 3 is the first affordable, mass market electric car. The entire business of Tesla hinges on the success of this new car. Last year Musk was quite confident Tesla could make about 5,000 new cars per week by the end of 2017.

However, the reality is far from his expectations. The production pipeline has been experiencing problems which has hindered the company’s output. According to a recent shareholder’s report, there was an average production rate of 830 cars per week in the first quarter of 2018. That’s less than 20% of the goal. In February of 2018 production was even halted for a week. As for the cause of the slow production, “excessive automation at Tesla was a mistake,” Elon Musk mentioned in the CBS morning show which gave a sneak peak into what’s goes on in the factory. “We got complacent about some of the things that are in our technology. We’ve put too much new technology into the Model 3 all at once but this should have been staged,” he clarified. High tech doesn’t just go into the cars, but it also builds them. The Tesla plant is widely regarded as the most robotics driven assembly factory in the world.

The forecast has now been pushed to 5,000 cars by later this summer. But other complications may get in the way of that. Tesla recently has decided to shut down its assembly line again for six days to fix some issues.

As of last month Tesla was making about 2,000 Model 3s per week. So from a big picture point of view, the company would be able to produce and deliver about 220,000 in 2018. That’s not far from 330,000 cars sold by BMW in the us in 2017. But when the Tesla Model 3 was announced, an estimated 400,000 pre-orders were initially made for the car. Even if that number did drop off it’s still a record amount for the auto industry in terms of prospective owners. No other manufactures has had so many advanced vehicle orders. But the question still remains as to just how long Tesla customers will have to wait to get theirs.

Some people may say that Musk is over promising and under delivering. That’s why Tesla stock is often seen as a story stock. Another unknown factor is the rising competition the car maker is facing. Ferrari and Buick are getting into electric cars now as well. How much longer will investors trust Tesla’s story and future promises. Just because it’s the first to enter a new market doesn’t necessarily mean it’ll remain successful in the long run.

Other concerns investors have is the high amount of debt on Tesla’s balance sheet, and how the company seems to be burning through money. One thing is for sure – without Telsa, other car companies wouldn’t be engineering and building electric cars as fast. Musk is paving a path for the future, which is good for society as a whole but in terms of an investment, I would stay away from this stock until the company has proven that it can reliably hit production targets.

This author does not have any shares in TSLA and does not plan to own any within 72 hours of this post.

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