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David Robinson: Tesla has its hands full as Buffalo plant gears up

Tesla Inc. has its hands full as it gears up production at its long-awaited solar panel factory in Buffalo.

Its timing isn't the greatest, either.

The solar energy industry is slowing, just as Tesla and its partner, Panasonic, are starting production at the South Park Avenue factory, which is scheduled to be making enough solar panels to generate 1,000-megawatts of electricity come 2019.

State officials say they are confident Tesla will deliver on its promises to create 500 factory jobs – and 1,460 positions overall – in Buffalo in return for the state spending $750 million to build and outfit the biggest solar panel factory in the Western Hemisphere.

"It's a very diversified company, and we are one part," said Lt. Gov. Kathy Hochul.

Tesla sign goes up as it begins seeking production staff

For now, though, investors are firmly fixed on the company's first mass-market electric car, the Model 3, and Tesla's efforts to ramp up production of the car as the company prepares to release its third-quarter earnings on Wednesday, followed by a closely watched conference call with Musk. Most of the talk is expected to focus on the Model 3, with Tesla's solar energy business falling far in the background.

The Model 3 is "the most important piece of the Tesla investment story in the coming quarters," said George Galliers, an analyst at investment firm Evercore, as he downgraded Tesla's high-flying stock to neutral from a buy.

Galliers said he had become more cautious about Tesla's Model 3 production, which is in the spotlight after the company said it produced only 260 of the sedans during the third quarter, far less than the 1,500 the company had targeted. That shortfall raised doubts that Tesla could meet its ambitious goal of producing 5,000 vehicles a week by the end of the year.

The electric vehicle maker is in what Musk describes as "production hell" with its eagerly anticipated Model 3 sedan. The Model 3 production shortfall raised questions about Tesla's ability to meet its ambitious production goals for a more affordable mass-market car that the company is counting on to be a big source of revenue in the coming years.

Tesla blamed the unexpectedly slow Model 3 production on "bottlenecks," while also saying they weren't due to any fundamental issues with production or its supply chain.

The production disappointment is a big reason why Tesla's high-flying stock is down 7 percent over the past week and 18 percent from its peak in mid-September. The stock still is up more than 50 percent this year.

"Don't miss the 'forest' for the trees when considering near-term Model 3 production constraints," said Romit Shah, an analyst at investment firm Nomura Instinet in a research note on Tuesday warning that Tesla's earnings report likely will disappoint investors. "Ultimately, we view near-term delivery timing as semantical; reaching mass-market production is critical, whether it happens next week or in six weeks is not."

At the same time, Tesla is ramping up production at its mammoth gigafactory in Nevada that will make sophisticated lithium-ion batteries for both its electric vehicles and its solar energy business. Musk last week posted a photo on social media of himself camping out on the gigafactory roof, saying it would save time over driving to a hotel in Reno.

For now, the solar panel factory in Buffalo – Tesla's Gigafactory No. 2 – is playing second fiddle to the Model 3.

David Robinson: Tesla's Elon Musk has a message for Buffalo skeptics

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