Tesla Inc’s (NASDAQ:TSLA) Elon Musk is a natural-born disrupter. One of his latest endeavors is to wreak havoc on the trucking industry, which, by the way, hasn’t seen much innovation in many years.
TSLA’s electric semi has gotten instant traction, as marquee companies like Wal-Mart Stores Inc (NYSE:WMT), PepsiCo, Inc. (NYSE:PEP) and United Parcel Service, Inc. (NYSE:UPS) have placed orders. The vehicle can go up to 500 miles on a single charge.
While this is great and should help TSLA stock, there is still a nagging issue: production of the Model 3. The brutal truth is that things have gone pretty badly since the vehicle was rolled out in July.
Note that the original forecast from Musk was for production to hit 100,000 for this year and 10,000 a week in 2018. Yet he had to quickly backpedal on this. Musk’s latest estimate is that TSLA will produce 5,000 Model 3s a week in the latter part of the first quarter, and some time during the year, the levels will hit 10,000 per week.
To put things into perspective, TSLA will be lucky if production is 5% of the original forecast! In fact, Morgan Stanley analyst Adam Jonas has put out a forecast that production will be a mere 1,000 in December.
But hey, does it really matter? Aren’t holders in TSLA stock not too worried about negative news? Perhaps. Although, as seen this year, TSLA stock has shown quite a bit of sensitivity. From mid-September to early November, the shares dived from $385 to $299.
So why the production problems? Well, for the most part, it looks like the source is the battery system, which is exceedingly complex.
As InvestorPlace contributor Dana Blankenhorn has noted: “Tesla hasn’t been able to change one very important thing. It’s still not easy to make a car, in quantity and get it right. Tesla cars continue to show defects, because robots have masters, and those masters are human.”
TSLA Stock and Focus
Musk has many huge projects on his plate. Besides rolling out the semi, he also has recently announced another vehicle, the Roadster (the proposed price tag on this hot rod is $200,000).
What’s more, TSLA is running the SolarCity division and is involved in the heavy lifting of developing a network of charging stations (which are likely to get even more expensive for the semis). Oh, and there is even buzz that the company will develop its own AI hardware, which would displace the need for Nvidia Corporation (NASDAQ:NVDA).
In the meantime, Musk has many other extracurricular activities. He is the CEO of Space Exploration Technologies and is an angel investor, with stakes in companies like The Boring Company and Hyperloop. Of course, Musk is also making plans to colonize Mars, and he has even offered to rebuild the infrastructure of Puerto Rico!
In light of all this, it seems almost impossible that TSLA has been able to do anything at all, much less producing a large number of highly sophisticated cars.
Bottom Line on TSLA Stock
Cascend’s chief investment strategist, Eric Ross, has recently issued a sobering report on TSLA stock. His analysis indicates that demand for the Model 3 is starting to trail off. Why? The main reason is that the delays have impacted enthusiasm. The reality is that many customers will probably have to wait until 2019 to get a vehicle.
This certainly poses many risks, as competitors like General Motors Company (NYSE:GM), Daimler AG (OTCMKTS:DDAIF) and Ford Motor Company (NYSE:F) will have more time to grab market share. TSLA may also need to tap the equity markets to make sure it has enough liquidity to get through the production problems.
Given all this, Ross has a price target on TSLA stock of $250.
Now it’s true that analysts have been wrong many times with the company. But as for 2018, the Model 3 will definitely be critical for TSLA stock, as it will show if the firm can go mainstream. Because of this, it would be much more encouraging if Musk would instead focus most of his brilliance on making sure the Model 3 gets to market as smoothly as possible.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.