Tesla hits critical production milestone

Manufacture of new Model S vehicle ramped up

Franz von Holzhausen, chief designer at Tesla Motors, talks about the Tesla Model X

Tesla Motors, the US electric carmaker headed by PayPal co-founder Elon Musk, hit a critical milestone as it ramped up production of its Model S late last year, according to quarterly figures released by the company on Wednesday.

Delivery glitches, cancelled orders and a slowdown in vehicle reservations so far this year combined, however, to take the shine off the latest numbers and sent shares down by more than 7 per cent in after-market trading.

News that Tesla was still hitting the deadlines it had set to make the Model S the first luxury electric car to reach a large global market came a week after Mr Musk sparked a public row with The New York Times over a test drive that ended with one of the vehicles being hauled to a charging station on the back of a truck.

Mr Musk accused the Times reporter of misrepresenting the test drive and working “very hard to force our car to stop running”. A subsequent investigation by the paper’s public editor cleared the reporter of having faked the test, though it also found that “few conclusions [in the report] are unassailable”.

On Wednesday, Tesla said production of the Model S reached 400 a week for three consecutive weeks in December, hitting the target it had set for getting to sales of at least 20,000 in 2013. On a conference call with investors, Mr Musk said the quality of vehicles coming off the line had improved, even as Tesla scaled up production.

Fourth quarter deliveries only reached 2,400, however, below the 2,500-3,000 forecast three months before. Tesla put the slight shortfall down to teething troubles in its delivery process over the holiday period.

New orders for the S reached 6,000 in the fourth quarter as Tesla extended its network of company stores and the vehicle won two car of the year awards in the US. However, the number of outstanding orders at the end of the year rose to only 15,000, up 2,000 from three months before, as a number of customers who had made reservations cancelled orders.

Tesla also said new orders so far this year were running at a slower pace than the final months of 2012 due to a price rise that took effect at the end of the year.

Mr Musk denied the cancellations and softer orders showed any weakness in demand. The company had deliberately “cleaned out” some of its old reservations by requiring potential buyers to choose the specifications for vehicles, prompting some to back out of purchases, the chief executive said. He also said Tesla already had enough orders in train to reach its sales targets this year and would be mainly focusing on improving manufacturing efficiency and raising the gross profit margins on the vehicle in the first half of this year.

Tesla reported sales of $306m and a net loss of $90m, or 65 cents a share on a pro forma basis. That compared with Wall Street forecasts of revenues of $298m and a loss of 53 cents a share.

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