FILE- In this May 27, 2018, file photo, a 2018 Model 3 sedan sits at a Tesla dealership in Littleton, Colo. Tesla Inc. made 5,031 lower-priced Model 3 electric cars during the last week of June, surpassing its often-missed goal of 5,000 per week. Tesla reported making 28,578 Model 3s from April through June, according to its quarterly production release on Monday, July 2. (AP Photo/David Zalubowski, File)

Tesla makes 5,000 Model 3s per week, but can it continue?

July 02, 2018 - 1:05 pm

DETROIT (AP) — Tesla Inc. made 5,031 lower-priced Model 3 electric cars during the last week of June, surpassing its often-missed goal of 5,000 per week. But the company still only managed to crank out an average of 2,198 per week for the quarter.

Tesla reported making 28,578 Model 3s from April through June, according to its quarterly production release on Monday.

The Model 3, which starts at $35,000, is the key to turning Tesla from a niche maker of expensive electric cars to a profitable, mass-market automaker. The company badly needs cash from the compact cars to deliver on CEO Elon Musk's promise to post a net profit and positive cash flow in the third and fourth quarters. The company has had only two profitable quarters in its 15-year history.

To hit the 5,000-per-week mark, Tesla had to erect a fourth assembly line under a tent outside its Fremont, California, factory, and Musk had to spend nights in the plant working out bugs with automation and other problems.

The company now says it expects to hit 6,000 Model 3s per week by late August, with its Model 3 assembly line under the plant's roof reaching 5,000 on its own.

"The last 12 months were some of the most difficult in Tesla's history," the company's statement said. Hitting the 5,000 mark "was not easy but it was definitely worth it," the statement said.

Tesla critics now wonder if the company can keep up the 5,000-per-week rate, and they question whether the company can build high-quality vehicles underneath the heavy-duty tent on the site of what once was a joint-venture factory for General Motors and Toyota.

Dave Sullivan, manager of product analysis at the market research firm AutoPacific Inc. and a former manufacturing manager for Ford Motor Co., wasn't impressed. "Reaching it is one thing," Sullivan said. "Consistently producing 5,000 per week with outstanding quality is another. I don't think producing 5,000 once is anything to get excited about until it's repeatable."

Last summer, when the first Model 3s began rolling off the assembly line, Musk promised to build 5,000 per week by December and 10,000 per week in 2018. But he also warned at the time that Tesla was entering at least six months of "manufacturing hell" as it tried to hit the targets.

On Monday, the company said it delivered 18,440 Model 3s during the quarter to help satisfy a waiting list that now is around 420,000. Some have been holding out for their cars since March of 2016 when the company first started taking orders. Another 11,166 Model 3s are en route to be delivered to owners, the company said.

Currently the cheapest Model 3 that can be ordered costs around $49,000, and they can run upwards of $70,000. The company hasn't said when it will start producing the $35,000 version, which comes only in black unless a buyer pays more.

Tesla also said it delivered 10,930 Model S sedans and 11,370 Model X SUVs during the quarter.

Model 3 sales are critical to Tesla's future. The company has never posted a full-year profit, and it burned through more than $1 billion in cash in the first quarter. Wall Street investors, who have pushed the company's stock beyond $340 per share, are growing impatient with the losses.

Moody's Investor Service downgraded Tesla's debt into junk territory back in March, warning that Tesla won't have cash to cover $3.7 billion for normal operations, capital expenses and debt that comes due early next year. Tesla said cash from Model 3 sales will pay the bills and drive profits.

Shares of Tesla Inc. fell 2.3 percent to $335.26 in midday trading Monday. Analysts said investors had expected Tesla to reach the production target.

Musk told investors on a first-quarter earnings conference call that the company relied too heavily on automation. It had to hire more people to work at the factory.

The company also may have to deal with some safety issues. Investigators from two federal agencies are looking into five crashes of its vehicles, some involving the semi-autonomous Autopilot system or post-crash battery fires that have been difficult to extinguish.

But regardless of those issues, Musk was in a celebratory mood Sunday.

"I think we just became a real car company," he wrote in a note to employees.

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AP Business Writer Paul Wiseman contributed to this story.

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