Tesla Delays Its Model 3 Production Goals—Again

UPDATE: On Wednesday, January 3, Tesla revealed it has pushed back its production targets for the Model 3 sedan, yet again. In its latest Vehicle Production and Deliveries report, Tesla says it is focussing on quality and efficiency, rather than just pushing for the max volume in the shortest time, and so is aiming for a production speed of 2,500 Model 3s per week by March, and double that by the end of June. In a November investor call, CEO Elon Musk had said he wanted to build 5,000 of the cars per week by the end of March 2018—after originally promising to hit that number by the end of 2017. Tesla delivered just 1,550 Model 3s in the final quarter of last year. This story, about the difficulty of scaling up automobile production, originally ran on November 1, 2017.

If you are eagerly awaiting your Tesla Model 3, it might be time to download that meditation app, because you're gonna have to relax and get ready to wait. In the third quarter of 2017, Elon Musk's automaker delivered just 222 of the all-electric, affordable sedans. That's far fewer than it had promised, and puts just the tiniest of dents in the waiting list of 400,000 people who have paid $1,000 for a chance to buy the latest Tesla.

Musk had predicted that by the end of the year, the Model 3 production line would be humming along, cranking out 5,000 cars per week. In a Wednesday letter to investors, the company pushed that target back to March 2018. "In the grand scheme of things this is a relatively small shift," Musk said on a call, sounding tired but upbeat.

Now, the question for Tesla is whether customers and shareholders agree—and how much longer they'll keep the faith.

The feeble numbers can be traced back to the Nevada Gigafactory where Tesla builds batteries for the cars. An outside supplier responsible for part of the process of assembling batteries into modules, into packs, "dropped the ball," Musk says, and Tesla was forced to take the work in-house. "We had to rewrite all of the software from scratch and redo many of the mechanical and electrical elements," he says. "This is what I’ve spent many a late night at the gigafactory working on."

“They are making some big promises, and they need to show a path to get there,” says R. A. Farrokhnia, a business and engineering professor at Columbia University. The car business is notoriously tough, but building just a few cars, reportedly by hand, is not enough. Tesla has to convince investors there’s some forward momentum, and it will deliver on its promises. “Or they’re going to crash and burn at some point. Reality will catch up with them.”

Much of this “production hell,” to use Musk’s phrase, is his own making. The CEO regularly makes bold promises and overloads his to-do list, and seems to enjoy the heat. He recently Instagrammed a video of himself drinking, singing, making s'mores, and camping on the roof of the Gigafactory. He preferred camping out, he explained, to driving 30 minutes to and from the nearest hotel. Musk is a designer and engineer at heart, and enjoys being hands-on, problem solving.

Right now, Elon’s desk planner looks something like this:

• Find and fix the bottlenecks in Model 3 production
• Ramp up a new production line to start building and delivering the cars
• Win the race to make cars fully autonomous, fending off competition from every major automaker and tech company
• Demonstrate full self-driving capability by the end of 2017
• Patch up the power grid in Puerto Rico with Tesla batteries and solar power
• Start building cars in China
• Show off a Tesla 18-wheeler truck
• Roll out the new Tesla solar roof tiles
• Fend off workers' attempts to unionize
• Defend Tesla against lawsuits from employees alleging unfair or illegal dismissal
• Oh, yeah, continue to build and sell Model S sedans and Model X SUVs to keep cash coming in

That’s just his “Tesla” to-do list. Next to that, he’ll have one for SpaceX, which is fighting for military satellite launch contracts. In the margins Musk will have some doodles of tunnels, which his Boring Company is currently digging and hopes to fill with cars and hyperloops real soon. Then there’s his brain machine interface company, Neuralink, but that’s what evenings and weekends are for.

On that last point on Musk's list, Tesla delivered a record 25,915 cars in the third quarter of 2017, but still posted a loss of over $600 million, due to the high cash burn of scaling up for the Model 3.

But investors are still happy to pay a premium for Tesla shares, because they’re believers. Musk may be overworked, but he usually delivers. Eventually. He’s achieved things others have dismissed as impossible, launching private rockets to the International Space Station and catalyzing a global shift away from internal combustion engines.

Musk is confident that Tesla can overcome the production bottlenecks, and promises he's being hands-on, personally. "I always move my desk—well I don’t have a desk actually—I move myself to wherever the biggest project is at Tesla." Trying to explain his production hell, Musk appropriated Dante's ranking of the underworld. Tesla just moved from the ninth to the eighth circle of hell, with number seven in sight. In other words, they're making progress, if slowly. "The whole team is on it, we've got it covered, it's just going to take us a few months longer than expected," Musk said.

Tesla even released a short video to prove it's robots are busy building Model 3s—or at least one car, anyway.

And despite the not-so-great news, Tesla's stock price dipped, but didn't crash. Investors mollified, check. Tesla says it's still piling up Model 3 reservations. Buyers still keen, check.

One more hurdle for Musk: his employees. Not everybody shares the CEO's workaholic attitude, and the difficulty of everything that Tesla is trying to achieve, and its crazy timescales, is starting to show. The unionization efforts at Tesla’s Fremont factory, where it assembles cars, and the complaints about working conditions (which the company denies), show some staff are unhappy.

“It is an indication that there is a lot of stress over there,” says Art Wheaton, an auto industry expert who teaches labor relations and management at Cornell. Scaling up to mass production works a bit like a tidal wave he says: A company can think it’s well prepared for what’s coming, and lay down plenty of sandbags. But then suddenly the wave crashes over it, submerging it, and floating up all sorts of issues it hadn’t considered. And for Tesla, that's all while under more intense scrutiny from a press and public desperate for details—and cars—than perhaps any other company.

To be fair, Elon Musk tried to prepare investors, workers, and wannabe buyers of his cars, that he spotted the tsunami well offshore. He famously brought down the mood at an employee party to launch the Model 3 in July, by telling them “welcome to production hell.” He forecast at least six months of nightmarish conditions. It’s looking like that’s going to be just another one of Musk’s catalogue of underestimates. He just has to hope that buyers', and investors' patience, doesn’t run out.

• If you’re still waiting for a Tesla Model 3, our review of driving one on launch day will give you plenty of details about your, hopefully soon to be, new car

• If you’ve changed your mind and want your $1,000 Tesla Model 3 deposit back, here’s what to expect

• For a rare insight into Tesla’s manufacturing mindset, climb the stairs to the company's secret second floor