Tesla shares soar after Musk predicts improved production

Elon Musk is confident Tesla Inc. can finally meet a production target with its crucial Model 3 and predicted that manufacturing will actually become a strength for the electric-car maker over time.

The shares surged Wednesday after Musk, Tesla’s chief executive officer, said the company was “quite likely” to build 5,000 of the sedans a week by the end of this month. Musk reaffirmed his forecasts for second-half profit and cash generation based on that target, and said he still sees no need to raise more capital.

“It’s very difficult to become a mass-manufacturing car company,” Musk, 46, said Tuesday after shareholders voted down a measure that would have required an independent director replace him as chairman. “No one has succeeded in doing this in a very long time in United States.”

Manufacturing has befuddled Tesla ever since Musk predicted 11 months ago that “production hell” would be ahead for the first car the company was trying to make in high volumes. Missed targets for the Model 3 contributed to the company burning through more than $1 billion in three of the last four quarters. An activist investor group cited failures to meet goals with the sedan as one of the reasons shareholders should have opposed re-electing three directors to the board during Tuesday’s annual meeting, but its bid failed.

Tesla shares climbed 9.7 percent — the biggest jump since November 2015 — putting the stock back in positive territory for the year. Its senior unsecured notes due in 2025 also rallied.

Third Line

One of the reasons for Musk’s assurance that Tesla is turning the corner on manufacturing is the addition of a third general assembly line that completes the process of putting together the Model 3. The company started building the third line about two weeks ago, and the initial cars are moving through “crazy fast,” he said.

“The biggest constraint on output is general assembly,” Musk said. “We can probably get to 5,000 a week with the current two general assembly lines. But with the third one, I’m highly confident that we can exceed 5,000 units per week.”

Tesla is also now turning its attention toward expanding its manufacturing capacity by adding another plant, which will produce cars, battery packs and powertrains in Shanghai. The company may announce more details about that factory as soon as next month, Musk said, then reveal plans for another to be built somewhere in Europe toward the end of 2018.

The comments by Musk followed shareholders’ votes to reappoint three directors who were up for election during the meeting: private equity investor Antonio Gracias, Twenty-First Century Fox Inc. CEO James Murdoch, and food industry entrepreneur Kimbal Musk, Elon’s brother.

Investors also defeated a proposal to require that the chairman be an independent director, according to Todd Maron, Tesla’s general counsel, who said the company will release voting results in a regulatory filing within four business days. Norway’s $1 trillion sovereign wealth fund backed the unsuccessful measure, which would have split Musk’s combined chairman and CEO roles.

Next Products

The all-wheel drive version of the Model 3 will come out next month, Musk said. The shorter-range battery version of the car that starts at $35,000 will start to arrive late this year, though the company may not reach volume production of that iteration until the first quarter of 2019.

Tesla then plans to unveil the Model Y crossover in March. That will go into production in the first half of 2020, along with the Semi truck and Roadster models, Musk said.

Musk still thinks manufacturing will become a competitive advantage for the company in the long term. He acknowledged this was a counterintuitive prediction after Tesla’s trying experiences over the last year.

“It’s like, I will tell you, the most excruciating, hellish several months I’ve maybe ever had — and a lot of other people at Tesla,” Musk said during the meeting, before inviting several of his top deputies to share the stage. “But I think we’re getting there.”

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Tesla shares soar after Musk predicts improved production