Tesla releases Model 3, but delays production ramp-up plans

Semi EV truck and new compact SUV to be launched in 2019



In July 2017, Tesla (the company changed its name from Tesla Motors in February 2017) launched the Model 3 EV compact sedan, an affordable EV with a suggested retail price of USD 35,000 (base model). This was an important step for the company to accomplish its mission to help accelerate the world's progress to a sustainable energy future through mass-market EVs. Demand is high for the Model 3 with Tesla has already receiving orders for 455,000 units as of August 2017. The company has increased its output target to 500,000 cars annually by 2018.

Tesla, however, has been struggling with production delays of the Model 3 due to bottlenecks on the assembly lines at its Fremont vehicle assembly plant and Gigafactory 1 battery factory. The company postponed its schedule to build 5,000 vehicles per week from the end of 2017 to late March 2018. Tesla said that there are no fundamental issues with Model 3 production processes or its supply chain and that it is resolving problems on some of its highly automated production lines.

Tesla has a plan to expand its EV lineup to address all major segments of the vehicles. In 2019, the Semi electric semi-trailer truck, the automaker's first commercial vehicle, and the new Model Y compact SUV which share the same platform as the Model 3 are projected to be launched. Some retail chains including Walmart have already placed orders for multiple units of the Semi which was unveiled in November 2017.

Tesla enabled its first generation Autopilot feature which delivers SAE's Level 2 autonomous driving capability on the Model S and Model X in October 2015. From October 2016, all newly produced Tesla vehicles including the Model 3 have been equipped with the hardware needed for fully automated driving. While it will take time to make fully automated driving features available, the automaker has begun rolling out its Enhanced Autopilot (which also offers Level 2 capability) with improvements to the features of the original Autopilot. In addition, Tesla is developing AI chips for its autonomous driving cars in-house.

Tesla's deliveries totaled 73,150 units for the period January-September 2017, and total deliveries of the Model S and Model X for the year of 2017 are expected to reach 100,000 units (according to the company's outlook released in November 2017). While revenues for the same period grew 79.6% year-over-year (y/y) to USD 8.47 billion, losses from operations increased from USD 0.4 billion to USD 1.03 billion and net losses from USD 0.55 billion to USD 1.47 billion due to increased R&D and capital expenditures as well as the Model 3 production ramp-up delay. However, as Tesla received record orders for the Model S and Model X in the third quarter of 2017 and orders for the Model 3 continue to grow, the company believes that its business results will improve when production bottlenecks are resolved.

Model 3 Model 3
Model 3, an affordable EV launched in July 2017 (Photo: Tesla) Model 3 vehicle assembly line
(Video: Tesla Q3 2017 Update Letter)

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