Tesla’s (TSLA, Financial) second-quarter deliveries hit the low end of the company’s guidance range, disappointing investors as the company faced supply issues with 100 killowatt-hour (kwh) battery packs. Tesla’s mass market Model 3 that will start rolling out Friday is two full weeks ahead of the original planned date.
Musk also added that he expects Model 3, which is sitting pretty with more than 400,000 reservations worldwide, to reach 20,000 production volume by December, a very ambitious goal. But, considering the demand it has generated, it’s clear that Tesla will have to stay in ramp-up mode for the next several years.
Source: Elon Musk’s Twitter Feed
But despite Model 3 hitting production, Tesla's investors were disappointed by second-quarter delivery numbers as the stock declined by more than 2% at the time this article was written. During the second quarter, Tesla delivered 22,000 vehicles, which is 53% more than it delivered in 2016 but a full 3,000 units less than the number of vehicles delivered in the first quarter.
As a company in growth mode, deliveries are expected to increase sequentially, and whenever the numbers move in the other direction it clearly shows something didn’t really work as planned.
In the second-quarter delivery press release, Tesla pointed fingers at a “severe production shortfall” of the key 100 kwh battery packs for its delivery woes:
“The major factor affecting Tesla's second-quarter deliveries was a severe production shortfall of 100 kwh battery packs, which are made using new technologies on new production lines. The technology challenge grows exponentially with energy density. Until early June, production averaged about 40% below demand. Once this was resolved, June orders and deliveries were strong, ranking as one of the best in Tesla history.”
Now that Model 3 has also entered production, it’s going to be a huge task for Tesla to keep its production and delivery in line for Model S and Model X and still manage the steady ramp-up for Model 3 production as well.
Tesla expects deliveries of Models S and X in the the second half of the year to exceed deliveries during the first half, which stands at 47,100 units. Even if the company nears 100,000 deliveries by the end of this year, it will be a huge achievement because it only delivered a little more than 50,000 cars in 2015.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
