Tesla Model 3 Production Comes In Near High End Of Estimates

Tesla (TSLA) on Tuesday said it met vehicle production goals for the third quarter but warned that trade wars between the U.S. and China have sharply raised the cost of vehicles imported to the country.

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Tesla said it produced a total of 80,142 electric vehicles in the third quarter, 50% more than it built during its second quarter and hitting the high end of estimates. It produced 53,239 Tesla Model 3s, in line with guidance and almost double the volume of the second quarter. The company had estimated Model 3 production in the range of 50,000 to 55,000.

But in the last week of the quarter, Tesla produced about 5,300 Model 3 vehicles. That’s short of Tesla’s goal to produce 6,000 Model 3s per week.

Tesla said it produced 26,903 Model S and X vehicles, also in line with guidance.

“With production stabilized, delivery and outbound vehicle logistics were our main challenges during Q3,” the Tesla announcement said. ” We made many improvements to these processes throughout the quarter, and plan to make further improvements in Q4 so that we can scale successfully.”

During the quarter, Tesla said it transitioned Model 3 production from entirely rear-wheel drive at the beginning of the quarter. It went to almost entirely dual motor all-wheel drive during the last few weeks of the quarter.

“This added significant complexity, but we successfully executed this transition and ultimately produced more dual motor than rear-wheel-drive cars in Q3,” Tesla said.

Tesla Troubles In China

In the announcement, Tesla said it’s facing headwinds from the ongoing trade tensions between the U.S. and China. Those trade tensions have resulted in an import tariff rate of 40% on Tesla vehicles versus 15% for other imported cars in China, it said.

Cars made and sold in China also have an advantage of cash incentives available to locally produced electric vehicles that are typically around 15% of the suggested retail price.

“Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China,” it said. “This makes for a challenging competitive environment, given that China is by far the largest market for electric vehicles.”

To address this issue, Tesla is accelerating construction of its China-based factory in Shanghai.

Tesla Deliveries Up

Tesla said it delivered 83,500 vehicles in all during the period. That included 55,840 Model 3s, 14,470 Model S cars, and 13,190 Model X’s.

“To put this in perspective, in just Q3, we delivered more than 80% of the vehicles that we delivered in all of 2017, and we delivered about twice as many Model 3s as we did in all previous quarters combined,” Tesla said.

Shares of Tesla were down 2.3%, near 303.20, during afternoon trading on the stock market today.

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