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Tesla Board Fiddles As Model 3 Falters

Seeking Alpha

Tesla Model 3 is nowhere close to the implied 1,000 per week run rate. Model 3 manufacturing continues to be problematic and we are skeptical of 5K ramp in 2018.

We also believe that the Company is seeing very poor reservation conversion trends. Q1 is also looking very weak. We share the data and rationale.

Tesla board’s plan for Elon Musk’s compensation is beyond the pale and likely indicative of a reset of the Tesla margin story.

Tesla story continues to unravel and the stock is ripe for a fall.

About a year and half back, we wrote a series of articles about how SolarCity was in financial distress contrary to the narrative of Chairman Elon Musk and SolarCity executive staff.

What happened in that scenario was that SolarCity’s loss generating, cash burning business model was exposed when interest rates on debts climbed. With capital markets closing in, that episode ended with Tesla (TSLA) acquiring the troubled SolarCity. History shows management sold a bill of goods to Tesla shareholders. As to be expected, SolarCity’s business shrank dramatically since that acquisition.

Tesla management today finds itself in a situation similar to where SolarCity was couple of years back. It is no secret that Model 3 ramp is not going well and the Company is burning enormous amounts of cash. Model 3 ramp has been revised down progressively over time. From 100,000 to 200,000 units in H2 2017, to 5,000 units per week by the end of Q4 2017, to thousands of units per week by the end of Q4 2017.

Model 3 Problems Are More Severe Than Management Commentary Indicates
The Company’s already reduced goals have been revised down yet again recently when Tesla announced Q4 delivery numbers. As we have pointed out earlier, the Model 3 status in that press release was intentionally vague and attempted to suggest a higher production rate than reality.

“During Q4, we made major progress addressing Model 3 production bottlenecks, with our production rate increasing significantly towards the end of the quarter. In the last seven working days of the quarter, we made 793 Model 3s, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3s per week.”

It has been over three weeks since this press release and we now have incontrovertible data that shows that Tesla is nowhere close to the proclaimed 1,000 Model 3’s per week production level. VIN tracking at various sources including Tesla Motors Forums and Model 3 VIN Tracking shows that only about 1000 vehicles may have been manufactured between the end of December through the third week of January. In the most optimistic scenario, Tesla may have produced at most 500 cars per week during the last three plus weeks. That is at best 10% of the rated 5,000 unit per week production.

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