Tesla is preparing to cut orders for 40 percent of parts for the Model 3, their highly anticipated new mass-market electric vehicle. According to The New York Post, Tesla has informed its parts supplier, Taiwanese company Hota Industrial, that it will be reducing its order of Model 3 parts from 5,000 sets to 3,000 sets per week, beginning in December. The reason: A production bottleneck that has slowed down the manufacture of the electric car. Tesla may also push back shipments of 10,000 parts that were due in March to May or June.
Hota’s shares dropped by 9 percent when the news became public. Tesla’s shares dropped by 2 percent to $319.50.
It looks like Hota isn’t the only Tesla supplier feeling the pinch. As a writer on Seeking Alpha reports, there’s a U.S. supplier has seen its orders cut by 40 percent as well.
This is bad news for Tesla, say analysts. As Seeking Alpha notes, the extent of the problems with Model 3’s manufacture is becoming more and more apparent. So, Tesla seems to be slowing procurement down in order to get a handle on their cash flow.
Based on the news of them slashing parts orders, there’s speculation that Tesla may not have even produced 100 cars this month. If their contracts insist that they have to buy at least 3,000 sets per week then at an estimated cost per set of $10,000, Elon Musk and co. could be losing $30 million per week. These losses will only accumulate as long as the “production bottleneck” continues. The delay could also mean that the parts may not be viable once the Model 3’s are beta-tested.
This could spell dark times ahead for Tesla as the story of one of their hot-ticket products becomes mired in logistical quicksand. Increased cash needs could mean another capital raise for the premium electric car company. However, given the bad news about the Model 3, it may be more challenging than their previous efforts. Their stock could crash and crash hard in the not too distant future, Seeking Alpha predicts.
Do you think that Tesla will be able to get through this production bottleneck and get the Model 3 back on track? Or will this be a big loss that ruins the reputation of the company? Let us know your predictions in the comments below.
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