Tesla Inc.'s Model 3 Production Continues to Lag

Tesla (NASDAQ: TSLA) has just released its fourth-quarter vehicle delivery numbers -- and they're largely within expectations. But the electric-car maker still managed to miss the mark in one important area: its all-important Model 3 production ramp-up.

Model S and X: strong growth

Going into its fourth quarter, Tesla forecast about 27,000 Model S and X deliveries for the period. That would have brought total Model S and X deliveries for 2017 to about 100,000. It ended up delivering 15,200 Model S and 13,120 Model X vehicles, for a combined total of 28,320. This brought total Model S and X deliveries during 2017 to 101,312, up 33% compared to 2016.

Highlighting how Tesla is still generating sales growth for its older models even as it ramps up production of the newer, less expensive Model 3, the company set another record for combined Model S and X vehicles in Q4, with deliveries up 27% year over year and 9% sequentially.

Tesla also said it had about 2,520 Model S and X vehicles in transit to customers when the quarter ended.

Model 3: a slower-than-expected start

As expected, commentary regarding the Model 3 seems to be overshadowing the company's better-than-expected Model S and X deliveries.

Tesla stock fell more than a percentage point in after-hours trading after the quarterly update on deliveries and production was posted, likely due to the automaker's decision to delay its target for a weekly production rate of 5,000 Model 3 units. Tesla was initially aiming to hit this ambitious milestone by the end of 2017. But management revised its goal to late Q1 when it released its Q3 delivery numbers. Now Tesla says it's expecting to achieve this production rate target by the end of Q2.

"As we continue to focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time, we expect to have a slightly more gradual ramp through Q1," Tesla said. Tesla's new target for the end of Q1 is a weekly production rate for Model 3 of 2,500 units, down from its previous target for 5,000 units.

Tesla said it ended Q4 with a production run-rate of 1,000 Model 3 units per week, setting the stage for far more Model 3 deliveries in Q2. Notably, it produced 2,425 Model 3 units -- a huge jump from the 260 produced during Q3.

"As a result of the significant growth in our production rate, we made as many Model 3's since December 9th as we did in the more than four months of Model 3 production up to that point," Tesla explained.

Tesla also said 860 Model 3 vehicles were in transit to customers at the quarter's end.

With Model 3 production now about six months behind Tesla's original targets, the electric-car maker is running out of excuses. For investors to continue betting on the huge growth management expects, it will need to start meeting or exceeding its revised targets.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.