For Tesla, the Best of Times, the Burst of Times

(Bloomberg Opinion) -- “Burst week” has quickly established itself as a highlight of the Tesla calendar. It’s like Thanksgiving, except it happens once every three months and everyone works twice as hard.

Tesla Inc. on Monday morning announced the number everyone’s been waiting for: In the last seven days of June, the electric vehicle maker churned out 5,031 Model 3s, finally delivering on a (much-reduced) target for this critical car. The stock duly jumped as much as 6.4 percent (though it was down 1.7 percent as of writing this).

On one hand, it’s understandable that Tesla bulls are stoked. The company’s difficulty raising Model 3 output has been the darkest cloud hanging over it, prompting a big sell-off in the stock this spring. Getting to 5,000 a week was critical to preventing another.

On the other hand, the fact that a company that hasn’t turned a regular profit is suddenly valued at $60 billion again because it managed to hit a production target for a single week is probably something worth thinking about.

The flip-side of burst week is that the rest of the weeks in the quarter look less impressive:

History is limited, given Model 3 production began only last summer. Notice, however, that the averages for each quarter have tended to be the same as for the final week of the preceding quarter. There are two implications. One is that the Model 3’s ramp isn’t built like most ramps.

The other, more hopeful, one is that Tesla may now maintain that 5,000-per-week average in the third quarter. Indeed, the company in Monday’s announcement suggested it could be even faster than that:

We expect that GA3 [the assembly line inside its Fremont, California facility] alone can reach a production rate of 5,000 Model 3s per week soon.

If it still needs to be said, statements of Tesla’s expectations should be taken with a fairly hefty serving of salt. What that statement also highlights, however, is the other part of Tesla’s second-quarter tale: the tent.

The extra structure set up outside the main Fremont facility — “GA4” to give it its official title — enabled Tesla to hit its 5,000-a-week target. The company said roughly 1,000 vehicles were put together there in the last week of the quarter.

That is an interesting number. Because if the tent was running 24/7 that week, then a Model 3 was rolling off that line at an average rate of one every 10 minutes, far slower than at traditional auto plants.

This captures the essential problem with burst week. Despite hitting that production number, Tesla missed the consensus forecast for Model 3 deliveries in the quarter as a whole by almost 12,000, or 39 percent (this may also reflect a strategic move to limit deliveries in order to extend federal subsidies). 

For Tesla to achieve the profits and positive cash flow it claims are imminent, it needs to produce vehicles at consistent volume and quality and with high productivity. Going all-out for one week looks more like a gimmick for the consumption of the stock market than a measured path to self-funding. The tent may have gotten Tesla over the arbitrary line of 5,000 for one week, but at what cost? We’ll find out in a month when results are released. 

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

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