Decisive year ahead for Tesla

The electric automaker Tesla is facing problems as it enters the new year. It isn’t meeting its goal of producing 5,000 vehicles per week of its mass market Model 3 sedan, and it could be forced to hit up investors for more money in 2018. John Dyer reports from Boston.

Tesla has yet to reach its goal of producing 5,000 vehicles per week of its mass market Model 3 sedan. (Image credit: Tesla)

2018 could make or break American electric automaker Tesla.

In the past year, the Silicon Valley company has hit major snags in the assembly of the Model 3 sedan, an electric sedan designed for mass markets that costs $35,000 – or around half as much as the company’s other models.

Production problems

Tesla Chief Executive Elon Musk has reportedly failed, for example, to achieve his goal of producing 5,000 vehicles a week by now. Rather, he’s seeing a drop-off in production, remarking earlier this year that he has been bogged down in “production hell” due to a shortage of lithium batteries and other headaches.

“It’s our fault for picking the wrong supplier and then not realizing it until way later in the game,” Musk said in November.

Real numbers

Around 450,000 people have pre-ordered Model 3 cars.

KeyBanc Capital Markets, an investment bank, recently estimated that Tesla was producing around 15,000 a month.

But Morgan Stanley is somewhat more conservative, estimating in mid-December that Tesla would produce 8,000 Model 3s in the first quarter of 2018, or tens of thousands short of goals set in early 2017. The investment bank predicted that Tesla would burn through $1.1 billion in free cash in 2018 but would likely avoid a cash crunch due to credit lines and other liquidity.

These developments have dragged down Tesla’s stock price by round 7 per cent in the final quarter of 2017. The company is now valued at about $53.3 billion. GM’s market capitalization is $59.4 billion.

Everything depends on Model 3

Analysts are watching closely whether Musk will launch a new round of financing to help solve his challenges or wait until he satisfies demand for Model 3s.

“Is this the year investors will say, ‘Enough’s enough’, or will they continue to fund Tesla?” asked Autotrader.com analyst Michelle Krebs. “That’s the big question. I suspect investors would continue funding them if they see progress on the Model 3.”

Tax credit remains

Musk received some good news this year.

In the US, Republicans who pushed tax reform through Congress retained a $7,500 tax credit for purchases of electric vehicles. Eliminating that credit would have been a serious blow to the electric vehicle industry.

China also retained a tax exemption on electric and hybrid vehicles. Tesla sold around $1 billion worth of cars in the world’s most populous country in 2016.

Pickup and SUV

Musk isn’t slowing down, either.

On Twitter, he recently asked how Tesla might improve. Around 13,000 people responded, prompting him to lay out some of the company’s future plans.

Musk said he was “dying” to build an electric pickup truck, which he predicted would become Tesla’s focus after he begins production on the Model Y. That latest car is a crossover sports utility vehicle that would build on Model 3 designs. It’s due in 2020.

Semi and sports car

Telsa is also starting production of a semi-tractor trailer truck in 2019. By 2020, Musk also plans to begin selling a new roadster that would go from zero to 96 kilometres per hour.

Describing the sports car as a “hardcore smackdown to gasoline cars,” he said it would make driving traditional cars feel like “a steam engine with a side of quiche,” Musk told investors in November.

Recently, Tesla put a cherry road version of the roadster on top of a Falcon Heavy rocket slated for launch in December by SpaceX, one of Musk’s other companies.

“Test flights of new rockets usually contain mass simulators in the form of concrete or steel blocks,” Musk wrote on Instagram on December 22. “That seemed extremely boring … We decided to send something unusual, something that made us feel.”

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