The target date for Tesla Model 3 production is July 1, 2017.
Tesla Motors had a quarter of nagging distractions.
In late June, CEO Elon Musk proposed a puzzling acquisition of another company he’s affiliated with, SolarCity. There was a fatal crash possibly involving Tesla’s Autopilot system that’s now under federal investigation and concern over nondisclosure agreements customers were being asked to sign on safety-related suspension repairs.
But none of this is what keeps Musk or investors up at night.
It’s the Model 3 that does.
Musk: Pushing timetable hard
Tesla’s attempt at a mass-market, long-range electric car won’t have a groundbreaking powertrain or gull-wing doors. And yet this most mundane Tesla product will carry the highest stakes. It will push Tesla to its limits as a manufacturer and test investors’ patience with a perennially unprofitable company.
“I really don’t care a whole lot” about the SolarCity acquisition, David Whiston, a strategist at Morningstar, told Automotive News. Investors, he added, “are most concerned with nailing the Model 3, not becoming a solar company.”
Tesla said the design for the Model 3 has finally been frozen, and it already has some initial production equipment for stamping and painting in place.
To nail the launch, Tesla expects to be writing big checks for the rest of the year, on top of the heavy spending it has already committed for plant upgrades and the new factory in Nevada that will supply batteries for the Model 3.
Tesla recorded $ 295 million in second-quarter capital expenditures and expects full-year capital spending to accelerate to $ 2.25 billion to support the ramp-up for the Model 3 and its goal of producing 500,000 vehicles in 2018.
For this, Tesla will be relying heavily on the $ 3.25 billion in cash it says it has on hand — counting $ 1.7 billion from a recent secondary offering — though many analysts believe it will need to raise more in the near future to keep its plans on schedule.
Timing will be crucial, especially if delays cause investors to get impatient and sour on the very idea of an affordable Tesla.
“The bigger question is: How long can Tesla lose money, and how wide can its losses get, before Wall Street cries foul?” said Karl Brauer, senior analyst for Kelley Blue Book.
To be sure, patience has long been a virtue of Tesla investors. Its second-quarter results, which were worse than expected, marked the 13th straight quarter of net losses. Deliveries were behind schedule, and investors heard familiar hints about non-GAAP profitability by year end. Yet the stock, already having recovered from doubts about the SolarCity deal, barely budged.
Musk has repeatedly targeted July 1, 2017, as the start date for Model 3 production, but much of that depends on external suppliers and internal teams hitting the ambitious timetable he has set.
“I don’t expect us to be at full production on July 1,” Musk said sternly on last week’s call. “But I have to drive all suppliers and internal efforts to that date knowing that some will fall short.
“And those that fall short will be cut out of the picture.”