Tesla revs up production of Model 3, easing investor worries

Tesla has managed to ramp up production of its "mass market" Model 3 electric cars. Photo / AP

Tesla has managed to ramp up production of its "mass market" Model 3 electric cars but output is still falling short of the targets that the company's billionaire founder Elon Musk intended.

Announcing first quarter production, Tesla said it built 34,494 cars, a 40 per cent rise on the previous period and a record for the Californian company. Of these, 9,766 were the "affordable" Model 3, the US$35,000 ($48,230) vehicle which Musk hopes will take electric cars mainstream.

In the final seven days of the quarter Tesla said it built 2,020 Model 3s, giving it a production growth rate it said "was the fastest of any automotive company in the modern era", according to the Daily Telegraph.

Tesla cited Henry Ford - who introduced the assembly line which revolutionised manufacturing of cars - to emphasise how it is increasing output, adding: "If this rate of growth continues, it will exceed even that of Ford and the Model T."

However, the total is still far behind Tesla's earlier predictions. Late last year the company said it hoped to hit a 5,000 per week Model 3 production rate by "late first quarter".

Musk rowed back on this level at the start of 2018 with a fresh target of 2,500 Model 3 cars by the end of the first quarter and 5,000 by the end of the second quarter.

He has said that Tesla is in "production hell" as the company tries to increase output, and has taken personal charge of manufacturing, saying that his "job as chief executive is to focus on what's most critical, which is currently Model 3 production".

Analysts have raised questions about Tesla's balance sheet as Model 3 production failed to hit initial targets, but the improvements led the company to reiterate the goal of producing more than 5,000 of the cars per week in "about three months' time".

Such a level would "lay the groundwork for the third quarter to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow. As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines."

The company also dismissed concerns that the maximum effort to boost Model 3 production was hitting other cars, saying the 2,000 car per week rate came alongside output of a total of 2,000 of its Model S and Model X cars.

This ramp-up was described as "a testament to the ability of the Tesla production team that Model 3 volume now exceeds Model S and Model X combined".

"What took our team five years for the S and X models, took only nine months for Model 3," the company said.

Anecdotal evidence that quality is also suffering as a consequence of the race to boost production was also addressed. There have been claims that cars are arriving at dealers off the line with parts missing or in need of remedial work before they can be handed to customers.

In the quarterly update, Tesla said that quality of Model 3 is the highest level of all its cars, which is reflected in a claimed customer satisfaction score of above 93 per cent.

The news was warmly received by investors, with shares in Tesla jumping almost 5pc in early dealing.

This reversed the drop yesterday as traders ditched the stock following a series of April Fool tweets from Musk suggesting the company had gone bankrupt, criticism from the US transport authorities after the company released details of a crash involving one of its cars which was using the "autopilot" feature, and a wider sell-off of technology stocks