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San Francisco - Elon Musk gave Tesla shareholders the welcome news he still plans to deliver his mass-market electric sedan in July, overwhelming any concern with disclosures the company’s chief financial officer is exiting and its finances would run "close to the edge" without another cash infusion.
The Model 3 electric sedan remains on schedule and will reach production of about 5 000 units per week by the end of the year, Tesla said on Wednesday.
Reassurances from Musk on the car’s timing should relieve fretting over whether the company can overcome its long history of product delays, as well as the impending departure of CFO Jason Wheeler, who joined the company 15 months ago from Google.
Priced at close to $35 000 before incentives, the Model 3 looms as the linchpin in Tesla’s plans to manufacture at high volumes and achieve the profitability that’s eluded the company in all but two quarters during its history as a public company.
After a loss for the final three months of last year, Musk said Tesla will be cutting it close bringing the vehicle to market without seeking more funds for the company coffers.
"How close to the edge do we want to go? According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge," Musk said on a conference call with analysts on Wednesday.
Since "that’s probably not the best thing for shareholders," the CEO said, "it probably makes sense to raise capital to reduce the risk."
Stock surge
Tesla shares climbed in aftermarket trading following a more than 40% surge that began in early December. The so-far steady state of the Model 3 has assuaged investors who have bid up the 14-year-old company’s market value to rival automakers that have been around more than a century and sell millions of cars a year.
The maker of Model S sedans and Model X sport utility vehicles reported a fourth-quarter loss, excluding some items, of 69 cents a share on Wednesday, narrower than the $1.14-a-share average estimate among analysts surveyed by Bloomberg.
The results were Tesla’s first since closing the acquisition of panel installer SolarCity in late November.
Tesla expects to deliver as many as 50 000 vehicles in the first half of this year. Its ambitions for Model 3 output next year show just how steep a curve Musk intends to climb - the company foresees production of 10 000 units a week by sometime in 2018.
"The Model 3 is designed for manufacturing," Musk told analysts. Compared with the Model S and Model X, both of which can sell for more than $100 000, the smaller Model 3 will be simpler to build.
"It’s a very compelling car, and we understand manufacturing a lot better than we did in the past."
Hiking output to an annual run rate of half a million Model 3s would put the car on a par with the BMW 3-Series, which competes in a similar price segment.
Other models in a similar sales league include the Volkswagen Passat, Audi A4 or the $24 000 Toyota Camry, according to Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler.
"There are only a handful of models in that mid-price range that manage to shift half a million units annually," Pieper said.
"This is a very ambitious and not overly probable target. Mass production, something Tesla hasn’t got experience with so far, is very complex.”
The Model 3 will rely on lower battery costs from the so-called gigafactory east of Reno, Nevada, that began producing battery cells earlier this year in partnership with Japan’s Panasonic.
The two have said they’ll start jointly making solar cells and panels this summer at a factory in Buffalo, New York.
Past delays
Tesla has struggled to meet past production forecasts and has blamed a series of issues - including problematic seats in the Model X and too much hubris in designing the electric SUV - for missing previous quarterly and annual projections.
The company delivered about 22 200 cars worldwide in the fourth quarter, bringing its total to 76 233 in 2016, less than an initial forecast for as much as 90 000.
'It is all about the Model 3, and Tesla says the suppliers are on time, which historically has been a thorn in Tesla’s side," said Ben Kallo, an analyst at Robert W. Baird & Co.
Tesla now refers to the solar plant that it acquired as part of the SolarCity merger as Gigafactory 2. The company expects to finalise locations for a total of as many as five factories later this year, according to a letter to shareholders.
Musk has vowed to make 500 000 cars annually in 2018. Meeting that ambitious target will depend a great deal on the Model 3, which is expected to boast at least 350 kilometres of battery range per charge.
Tesla reported 373 000 pre-orders for the Model 3 as of May, when it last updated its reservation tally.
CFO carousel
Wheeler, a former vice president of finance at Google, is leaving to "pursue opportunities in public policy," Tesla said in a blog post. Wheeler participated in Wednesday’s conference call and will stay through early April as Deepak Ahuja leaves retirement to return for a second tour of duty.
Ahuja, a former vehicle line controller at Ford Motor served as Tesla’s CFO from July 2008 through a turbulent period that saw Tesla careen from near bankruptcy to its June 2010 initial public offering.
He’ll come back to the company he left in late 2015 to help with scaling up for the Model 3.
"The jury is still out as to whether or not they can sell enough Model 3s to become profitable," Michael Wolf, the chief executive officer and co-founder of Activate, a technology consulting firm, said on Wednesday on Bloomberg Television.
"Going forward, the question is whether or not they can enter the mass market."
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