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Tesla hits Model 3 production speed bumps, slides to loss

Manufacturing system software needed a re-write after integrator 'dropped the ball'

Tesla has recorded a US$671 million third-quarter loss that it has blamed on supply chain and production problems plaguing its forthcoming Model 3 sedan.

The company's Model S and Model X vehicles have picked up by 4.5 per cent, the company said in its announcement (SEC filing here), but the company only managed to build 220 of the Model 3 (which has a waiting list of 500,000 preorders).

Its target for the quarter was 1,500 of the Model 3.

The 'leccy car builder blames not the complexity of the vehicle itself; rather, it's the heavily-automated manufacturing systems that are taking longer than expected to get their final polish: “bringing this level of automation online is simply challenging in the early stages of the ramp. We continue to make progress resolving early bottlenecks related to these issues, and there remain no fundamental problems with our supply chain or any of our production processes”, the company claimed.

Tesla said third-party suppliers in the Model 3 battery supply chain have created the biggest bottleneck: “the first two zones of a four zone process, key elements of which were done by manufacturing systems suppliers, had to be taken over and significantly redesigned by Tesla”.

In the earnings call, CEO Elon Musk elaborated: “There are four major production zones … zones three and four are in good shape, zones one and two are not.

“Zone Two in particular … we had a systems integration subcontractor unfortunately really dropped the ball, and we did not realise the ball was dropped until quite recently.

“This is a very complex manufacturing area, and we had to rewrite all of the software from scratch” as well as reworking electromechanical elements.”

The company has also had to push back its December Model 3 target of 20,000 units per month to the end of the first quarter of 2018.

Musk also complained that stories reporting layoffs lacked journalistic integrity, saying it was all about the company's annual performance review process and only a couple of hundred people – in the order of two per cent of staff – were dismissed.

“Shame!”, he added.

On the upside, revenue, at $2.9 billion for the quarter, was up 30 per cent over the same quarter last year. Tesla also said its renewable energy business is performing well.

Its ambitious project in the State of South Australia – 100 MW of batteries installed in 100 days – is on track, the company said, reaching the 80 per cent mark (it can't book the revenue until the project is completed).

Deployments of the company's domestic PowerWall battery are also going well,the company said, accounting for most of the 110 MWh of storage deployed in the quarter. ®

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