Electric-car maker Tesla revealed on Monday that it has missed its initial shipment goal for the new Model 3, the company’s first lower-cost, more mass-market-oriented electric vehicle.
For the third quarter of this year, Tesla said it shipped 220 Model 3 cars and produced 260 of them. In the company’s previous shareholder letter, Tesla said it was confident it could produce 1,500 Model 3 cars in the third quarter.
While Tesla has struggled to meet early production ramp-ups for all of its vehicles in the past, the Model 3 in particular has extremely aggressive manufacturing goals. CEO Elon Musk has said that Tesla plans to make 5,000 Model 3 cars per week at some point this year and 10,000 per week at some point in 2018.
By 2018, Tesla says it will make 500,000 of all of its cars combined per year -- up from the nearly 80,000 it made last year. Many of the cars slated for production in 2018 are supposed to be the Model 3.
While the miss is early on in Tesla’s Model 3 manufacturing growth process, it could be an indicator of struggles to come.
Tesla said in a statement that the lower-than-anticipated manufacturing of the Model 3 was due to “production bottlenecks.” A “handful” of its manufacturing machines have taken longer to expected to move to a higher production rate, said the company. Tesla emphasized that there are “no fundamental issues with the Model 3 production or supply chain.”
“We understand what needs to be fixed, and we are confident of addressing the manufacturing bottleneck issues in the near term,” the company said in a statement.
Musk has long warned investors, customers and the media that early production ramp numbers should be taken with a grain of salt, and did so again on Tesla’s latest earnings call.
“I would simply urge people to not get too caught up in what exactly falls within the exact calendar boundaries of a quarter, one quarter or the next, because when you have an exponentially growing production ramp, slight changes of a few weeks here or there can appear to have dramatic changes, but that is simply because of the arbitrary nature of when a quarter ends," Musk said.
While the exact calendar boundaries are indeed arbitrary in terms of car manufacturing, that doesn’t detract from the highly ambitious -- and risky -- nature of Tesla’s Model 3 production goals. The Model 3 manufacturing ramp-up will be incredibly difficult even if Tesla hits all of its production goals.
Musk and his employees know they have a hard task ahead of them. At the buzzy launch event of the Model 3 in July at the Tesla Fremont factory, Musk said to his employees: “Welcome to production hell...it’s going to be where we are for at least six months, maybe longer.”
“But you guys know this; you’re veterans. You’ve been through this,” he added.
The Model 3 is being made at the Fremont factory, and its batteries are being made at Tesla’s Gigafactory just outside of Reno, Nevada.
Tesla and Musk struggled heavily to ramp up the production of the Model X, the company’s crossover SUV with swooping doors. Musk, who slept on the factory in a sleeping bag during the Model X's early ramp, has said the company tried to cram too many bells and whistles into the early versions of the cars, which were plagued with software and hardware problems.
Early versions of the Model S and the Roadster also faced criticism for having various issues, which were smoothed out in later iterations of the cars.
Musk said on a previous earnings call that Tesla had learned from the Model X production problems and designed the Model 3 to be much easier to manufacture. Tesla's last shareholder letter states that “early Model 3 builds will have fewer than 100 permutations due to standardized content and packaged options as compared to over 1,500 permutations for Model S. This significantly reduces manufacturing complexity and streamlines the purchasing process for our customers.”
It appears the company couldn't escape the manufacturing complexity entirely.
While Tesla has its Model 3 production ramp to worry about this year, it continues to crank out its Model S and Model X. Tesla shipped a little over 47,000 of its Model X and Model S cars combined in the first half of the year. That included 22,026 cars combined in the second quarter.
On Monday, Tesla said that it shipped 26,150 cars in the third quarter, of which 14,065 were Model S cars and 11,865 were Model X cars. Tesla said the third quarter was its “all-time best quarter” for Model S and X deliveries, and had increased production by 4.5 percent over the third quarter of 2016.
Overall, Tesla expects to deliver 100,000 Model S and Model X cars in 2017. As for the Model 3? Who really knows -- likely not even Musk -- when Tesla will be able to hit that exponential Model 3 production ramp.
For now, Tesla's first "mass-market EV" remains a scarce commodity.
