It seems “production hell” for Tesla Inc (NASDAQ:TSLA) is just not going away, and it is not good news for the third-party suppliers as well. Tesla is reportedly planning to cut components orders for the Model 3 from the Taiwanese auto component maker.
“Production hell” continues for Tesla model 3
On Thursday, Reuters (citing a report from the Economic Daily News) says that Tesla could slash 40% of its components orders for the Model 3 from Taiwan’s Hota manufacturing plant starting December onwards. Citing Hota Chairman Shen Kuo-jung, the report says that the U.S. firm informed Hota that from December the orders would be slashed from 5,000 sets to 3,000. The reason cited was the “bottleneck” in the Tesla Model 3 production.
Following the report from the Economic Daily News, Hota shares were down almost 9%. The company makes gears and axles for vehicles. This report seems quite believable because earlier this month, Tesla admitted that due to production bottlenecks, it was unable to ramp up the Tesla Model 3 production as planned. On Thursday again, Tesla CEO Elon Musk talked about the production issue, but this time he hinted that the issue is at Gigafactory 1, according to Electrek.
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Musk shared an image of himself camping at the Gigafactory. Later, explaining the reason, he tweeted that they camped because it was more convenient than going back to the hotel in Reno, the closest town from the plant. Musk also mentioned “production hell, ~8th circle” in the tweet, suggesting at least one production issue could be at Gigafactory 1.
Btw, just want to express a word of appreciation for the hard work of the Tesla Gigafactory team. Reason I camped on the roof was because it was less time than driving to a hotel room in Reno. Production hell, ~8th circle …
— Elon Musk (@elonmusk) October 26, 2017
Musk gave no further information about what the actual issue was, but it could be anything, such as an issue with the battery cell level or battery pack level.
All eyes on Tesla Model 3 production update
Tesla delivered just 220 and produced 260 Model 3 units in the third-quarter. Musk planned to increase the production to 1,500 Model 3 units by September, up to 5,000 by the end of the year and then 10,000 a week by the end of next year. According to Tesla, it has 450,000 preorders of the Model 3. So, to clear it in 12 months, Tesla will have to produce 1,200 to 1,700 Model 3 vehicles a day, according to Rebecca Lindland, an analyst with Cox Automotive.
Lindland believes it will be a difficult task for the automaker, and thus, a likely scenario would be to clear the backlog in two years, according to MarketWatch. However, the problem here is not many buyers would wait for one year more. “I’ll be curious to see what leaks about the abandonment rate of the Model 3 deposits. I know I’m having second thoughts,” she said.
It must be noted that the first regular customer deliveries for the Model 3 is still listed as “late October” on Tesla’s website. So, if there is going to be any delay, we would know it soon as we are already in late October. Electrek’s Fred Lambert expects Tesla to update on the Model 3 production status when it announces its quarterly results on Nov. 1.
On Thursday, Tesla shares closed up 0.10% at $326.17. Year to date, the stock is up almost 53%, while in the last three-months, it is down over 5%.