Another quarter, another disappointment for Tesla Inc.
The electric vehicle maker failed to make as many of its more affordable Model 3 electric cars during the first quarter as it had promised just two months ago.
Tesla made more cars than some skeptical analysts expected. But the company is still struggling to turn the Model 3 into a big revenue producer.
The Buffalo Niagara region has a lot riding on the Model 3. Tesla needs the car to succeed to become profitable. And the company needs to be squarely on the path to profitability if it is going to bring the 2,900 jobs it promised to its solar panel factory in South Buffalo.
But there was good news in Tesla's announcement on Tuesday.
Tesla still expects its production rate to more than double by the end of June to about 5,000 cars a week. And the company said it won't have to raise additional money to fund its business this year. Credit rating agency Moody's last week downgraded Tesla's rating because its analysts believed the company might have to raise more than $2 billion in new capital to keep from running out of cash.
That cash is key for the Buffalo Niagara region, because Tesla also is slowly ramping up production at its sprawling solar panel factory on South Park Avenue. To conserve cash, the company has intentionally scaled back the solar energy business it acquired when it bought SolarCity in late 2016.
Tesla's partner, Panasonic, has more than 300 workers producing solar panels and cells at the Buffalo factory, but Tesla has been much slower to add employees for its part of the factory, where it will focus on a new solar roof that looks like a conventional house roof but has solar cells inside.
Tesla CEO Elon Musk unveiled the solar roof at a Hollywood bash just before Halloween in 2016, but it was late last year before the company started making its first solar roof panels in Buffalo. The solar roof still has a long way to go to become the transformational product that Musk expects it to be.
Tesla has never said how many roofing panels it is making in Buffalo, and the company has mainly been testing the panels on the roofs of Tesla executives and insiders. The first sign that the company had started installing the solar roofing panels on the first homes of customers came in the last week in tweets from a California homeowner.
If the solar roof, which costs much more than a conventional roof but comes with a 30-year warranty, is a hit, it will be easier for Tesla to meet the promises it made to state officials to bring 1,460 jobs to the Buffalo Niagara region, along with another 1,440 from suppliers and vendors, in return for $750 million in taxpayer money toward a state-owned factory on South Park Avenue.
For now, though, Tesla's solar energy business is taking a back seat to the Model 3.
Better than expected
The announcement Tuesday that it was producing its Model 3 vehicles at a rate of a little more than 2,000 cars per week at the end of March fell short of its target output of 2,500 a week. But it was better than some skeptical analysts had expected. Tesla also tried to reassure investors that the company was making progress in addressing the production and supply chain bottlenecks that have constrained the rollout of the mass-market vehicle.
Tesla said it is sticking to its forecast that it would be making 5,000 cars a week "in about three months."
“Tesla continues to target a production rate of approximately 5,000 units per week in about three months, laying the groundwork for [the third quarter] to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow,” the company said in a Securities and Exchange Commission filing.
Tesla has said it has more than 400,000 advance orders for the Model 3 sedan. It said those order levels are stable, addressing fears that the slower-than-expected ramp of the Model 3 was causing some customers who had put down deposits to pull their orders.
Tesla investors breathed a sigh of relief on Tuesday, pushing the company's share price up by 4 percent. The stock, which at one point last year had a market value greater than established car makers General Motors and Ford Motor Co., tumbled by 22 percent in March and was 36 percent below the all-time high the shares hit in September 2017.
The last week, especially, was full of bad news for Tesla. Moody's downgraded its debt rating further into junk status. Concern about the safety of its Autopilot driver-assistance system grew after a fatal crash on March 23 involving a Tesla vehicle that had self-driving feature was engaged. Tesla also announced on Thursday the voluntary recall of 132,000 of its Model S luxury sedans because of an issue with a power steering component.
The wave of bad news prompted Musk to tweet an April Fool's joke on Sunday that Tesla had gone bankrupt. On Monday, Musk tweeted that he was sleeping at the company's auto factory in California. "Car biz is hell," he tweeted.
On Tuesday, though, Tesla was more upbeat. The nearly 35,000 vehicles Tesla produced during the first quarter, including its Model S luxury sedan and its Model X sport utility vehicle, was 40 percent more than its fourth quarter production.
But Tesla didn't stop there. The company called it “the most productive quarter in Tesla history” and noted that the 9,766 Model 3s it produced during the quarter were four times more than it made in the quarter before.
"This is the fastest growth of any automotive company in the modern era," Tesla said. "If this rate of growth continues, it will exceed even that of Ford and the Model T."
Those of us in the Buffalo Niagara region will be content if the Model 3 is simply successful enough to make Tesla profitable and get its solar energy business back on the upswing.
After all, there are 2,900 jobs on the line.