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Tesla misses first major Model 3 goal in worst financial quarter ever

Tesla misses first major Model 3 goal in worst financial quarter ever


Automaker says it will make 5,000 Model 3s per week next year, points to problems at Gigafactory

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Photo by Amelia Holowaty Krales / The Verge

Tesla will no longer reach its long-stated goal of producing 5,000 Model 3 cars per week in 2017, pushing that deadline back amid production hiccups and a massive $619 million quarterly loss.

The automaker said Wednesday in its third quarter earnings report that Model 3 production has been slowed by progress at its Gigafactory, now saying it will reach its goal of producing 5,000 of the vehicles per week by early 2018, rather than the end of 2017.

“While we continue to make significant progress each week in fixing Model 3 bottlenecks, the nature of manufacturing challenges during a ramp such as this makes it difficult to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear,” the company said.

Tesla’s production problems were first revealed in October, when the company announced that it had only made 260 Model 3s since the car’s launch this summer. Tesla initially predicted that it would produce 1,500 Model 3s in September. On Twitter, CEO Elon Musk blamed “production hell” and “bottlenecks” for lower yield, but other reports pinned the blame on a production process that was still relying on hand-made parts and inadequate communication with the company’s suppliers.

On Wednesday’s call with investors, Tesla officials said the goal of producing 10,000 Model 3s per week has basically been abandoned, with the company determining how much it can ramp up production once it gets to 5,000 per week. The Fremont, California plant, when called NUMMI and owned by General Motors and Toyota, averaged less than 8,300 vehicles per week at its peak.

But none of these are new issues for Tesla. The company regularly blows its own deadlines, and it experienced a similar bout of employee dissatisfaction and on-the-job injuries in 2016 as a direct result of Tesla trying to meet ambitious production targets it set for the Model X. Last month, Model X deliveries were reported to be up 36 percent, while Model S was down 11 percent.

None of the production problems have helped Tesla’s earnings. Despite a record level of revenue for the quarter, Tesla reported a $671 million loss this quarter, its largest ever, and compared to a $336 million loss in the previous quarter. The company reported a $21 million profit in the third quarter of 2016 and an $888 million loss for all of 2016. Its total liabilities are now up to $22 billion following the investment the company has made in both the Model 3’s Fremont assembly line and the Nevada Gigafactory.

Tesla also has been facing unrest among its Fremont workers after a brutal round of firings, as well as several hundred layoffs at its SolarCity subsidiary. The United Auto Workers, which has been trying to organize Tesla’s factory employees, recently filed a complaint against the company on behalf of the fired workers. Tesla says 2 percent of its workforce had their employment terminated because of performance-related reasons, amounting to about 700 people. Musk called out some reports of Tesla’s labor issues as “shameful,” on the investors’ call.

There have also been a number of lawsuits brought by former employees alleging a toxic workplace rife with harassment and discrimination. Tesla has denied the charge.

Tesla's stock has surged 51 percent this year, sometimes surpassing that of American automakers Ford, Fiat Chrysler Automobiles, and General Motors. The stock fell 3 percent on Wednesday ahead of the earnings release.

The company confirmed it would show the Tesla Semi truck at a Nov. 16 event.

Update at 7:03 p.m. ET: This post now includes information from the Tesla quarterly investors call regarding Model 3 production and employee-related news.