Model 3 bottlenecks cause Tesla to burn more than just rubber

3 May 2018

Tesla’s affordable Model 3 is calculated to be a mass-market success, but only if it can produce enough of them. Image: Betto Rodrigues/Shutterstock

Tesla revs up losses of $710m by failing to produce enough Model 3 cars.

Not everything Elon Musk touches turns to gold, apparently, as his electric car company Tesla burned through $710m in cash in the second quarter despite impressive revenues of $3.2bn.

The losses mount as production of the Model 3 – Tesla’s first mass market car with a starting price of $35,000 – has been dogged by manufacturing issues.

‘It’s high time we became profitable’

Future Human

Tesla reported that it hit a production run high of 2,270 Model 3 vehicles per week in April. Prior to that, it produced 2,000 Model 3s in three straight weeks.

Yet, in a letter to shareholders, Tesla is still bullish and calculates that if it can bring Model 3 production volume to 5,000 units per week it can grow gross margin to pass the break-even point in Q3.

“Ultimately, the growth of Model 3 and the profit associated with it will help us accelerate the transition to sustainable energy even faster,” the company buoyantly predicted.

The main bottleneck appears to be in the battery module line. The company claims to have overcome this and said it will achieve a production run-rate of 5,000 vehicles per week even before it installs a new automated line in Germany.

Tesla is in a race against time

Musk was put under considerable scrutiny during an earnings call with analysts where concern about the cash burn rate was brought up again and again, along with questions on whether the company would need to sell off more stock to pay its bills.

During the testy call, Musk conceded the criticism was valid but insisted the company will make money and achieve a positive cashflow in Q3.

“It’s high time we became profitable,” said Musk. “The truth is you’re not a real company until you are, frankly. That’s our focus right now.”

The reason why the production levels of the Model 3 matter is because Tesla needs a mass-market success. Failing to produce enough machines means not having enough machines to sell in order to bring up the sales figures and stem losses.

It is understood that part of the reason for the bottleneck was the company over-automated the battery module line. Such delays are unconscionable as competitors – mostly traditional car brands like Nissan and Ford – bring out a slew of electrical and hybrid vehicles.

And so, Tesla is in a race against time to break-even. It needs to produce and sell enough machines to live up to Musk’s promise to become a profitable company later this year.

Tesla Model 3 image: Betto Rodrigues/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years