Tesla hits Model 3 production target, backs profit view

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(Reuters) – Tesla Inc (TSLA.O) crossed its long-elusive target of producing 5,000 Model 3 cars in a week after several delays, and reaffirmed its positive cash flow and profit forecast for the rest of the year.

FILE PHOTO: A Tesla Model 3 sedan, its first car aimed at the mass market, is displayed during its launch in Hawthorne, California, U.S. March 31, 2016. REUTERS/Joe White/File Photo

Tesla also said it expects to increase production to 6,000 per week by late August, indicating that it is overcoming the production issues that plagued the company for several months.

The electric carmaker’s shares rose 5 percent to $361 in early trading, after the company said it produced 5,031 Model 3 cars in the last seven days of its second quarter.

“We believe reaching the 5K units per week mark is ahead of investors’ expectations (in the 4K to 4.5K range) for Model 3,” Evercore analysts wrote in a client note. “We had expected Tesla to finish the quarter at a weekly run-rate of 4.6K units.”

Money-losing Tesla has been burning through cash to produce the Model 3, and delays have also potentially compromised Tesla’s first-to-market position for a mid-priced, long-range battery electric car as a host of competitors prepare to launch rival vehicles.

The company said 11,166 Model 3 vehicles were in transit to customers at the end of the second quarter, and would be delivered early next quarter.

Model 3 production tripled to 28,578 in the company’s second quarter from the previous quarter, Tesla said.

Reservations at the end of the second quarter stood at roughly 420,000. Tesla has delivered 28,386 Model 3 cars to date.

“This is very positive news for Tesla because the Model 3 takes them from a niche core producer to a mainstream automobile manufacturer,” Tigress Financial Partners analyst Ivan Feinseth said.

The company said it expects orders to grow faster than production rate after it starts allowing potential customers to see and test drive Model 3s at local stores.

Production of the mass-market sedan has been plagued by a number of issues, including problems with an over-reliance on automation on its assembly lines, battery issues and other bottlenecks.

Despite originally touting the Model 3 as a $35,000 vehicle, Tesla has yet to begin building that basic version and instead is currently building a higher-priced version.

To meet its goal, Tesla had set up a new production line inside a tent on the campus of its Fremont factory. The company said the new general assembly line was responsible for about 20 percent of Model 3s produced last week.

“The last 12 months were some of the most difficult in Tesla’s history,” the company said in a statement.

Reporting by Supantha Mukherjee and Munsif Vengattil in Bengaluru; Editing by Saumyadeb Chakrabarty

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