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After Warnings Of 'Manufacturing Hell' Issued By Musk. Tesla Sees Drop In Share Price

After Warnings Of 'Manufacturing Hell' Issued By Musk. Tesla Sees Drop In Share Price
As the electric car maker Tesla ramps up production of its new mass-market Model 3 sedan, Chief Executive Elon Musk warned that the electric carmaker would face "manufacturing hell” following which there was a drop of 3.5 percent in the shares of the company.
As he handed over the first 30 cars to employee buyers, setting the stage for a major test of Tesla's strategy to become a profitable electric car maker, Musk said customers had made over half a million advance reservations for the Model 3 at a launch event on Friday.
Teals hopes that to transform it from a niche player to a heavyweight in the automobile industry and to help turn the cash-losing company into a profitable one, the Model 3 would come to its help.
Investors focused on a warning by Musk that early production would be challenging even as they are already skeptical of Tesla's aggressive growth targets.
"We're going to go through at least six months of manufacturing hell," Musk told journalists ahead of the event. He later made similar comments on stage.
When the company posts its quarterly results, investors may get an idea of how "manufacturing hell" will affect Tesla's rate of cash burn. So far this year ahead of the launch, the Palo Alto, California company has spent over $2 billion in cash so far this year ahead of the launch.
An open letter to the independent members Tesla's board was also sent on Monday by a group of workers at the Fremont, California factory where the Model 3 is made. Access to company safety plans and information on compensation was requested by the employees who are trying to start a union.
Although it is down from a record high in June, Tesla's stock has gained 53 percent in 2017.
While the company has set itself an output targeted that it wants to reach 20,000 per month by December, the $35,000 Model 3 is primarily designed for easy production. In comparison, with a very high price tag starting around $80,000, and accompanied with several production problems, the luxury Model X SUV was the last vehicle launch by Tesla which was launched in 2015.
And in a target that many auto industry experts believe is unrealistic because it is close to six times its 2016 output, Tesla has promised to boost total car production to 500,000 vehicles next year. It sold 76,230 cars last year.
$59,000 would be the upper limit of the price for a Model 3 with all of available options, Musk said at the event. Barclays analyst Brian Johnson wrote in a note to clients that level could scare off potential Tesla customers.

Christopher J. Mitchell

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