Doubts have been raised about Tesla following a temporary suspension of production of the Model 3 sedan thus signaling the electric car maker’s inability to reach targets with regards to vehicle output. The Model 3 is the mass market brand from Tesla and hopes have been pinned on the fact that it would be instrumental in the future profitability of the electric car maker.
According to Tesla the reason for the halt in production, which is the second this year, was to enhance automation and address the challenges that were hampering production. Analysts have warned that the news concerning the halt in production will not be received well by the market.
“While temporary suspensions to production, in order to improve manufacturing engineering/line rates, are not uncommon in the auto industry, particularly during a ramp-up, we believe that the news will once more be taken negatively by the market; providing more honey to the bears,” wroteanalysts at Evercore ISI.
Per the chief executive officer of Tesla, Elon Musk, part of the reason for the reasons facing production at the company was excessive automation which had contributed to complexity as well as delays.
Analysts at Bernstein have said that Tesla has automated more assembly line functions compared to other manufacturers. While other manufacturers have automated welding, painting and stamping Tesla has gone further and attempted automating the final assembly and this is the stage where the electric car maker is facing problems.
Unmet production targets
At the close of Q1 the production of Model 3 failed to meet the weekly target of rolling 2,500 units off the assembly line. Musk had set a target of producing Model 3s numbering 5,000 in Q2 but a couple of analysts at Wall Street firms are skeptical. Some of the analysts are convinced that the targets Tesla has set this year with regards to the Model 3 will not be met.
This coincides with a report by Moody’s which says that the recall of the luxury Model S cars by the electric car maker would temporarily cause a disruption to the cash flow of Tesla’s $523 million bonds which are backed by car leases. Consequently investors will be hurt modestly per Moody’s Investors Service.
The recall of Model S vehicles numbering 123,000 is aimed at fixing bolts in the power steering of cars which were manufacturer before April 2016. Tesla has said these are minor repairs and on average consume around an hour to fix per vehicle.