July 2, 2018 / 6:27 PM / 5 months ago

Breakingviews - Tesla upshift puts focus on bigger battles

A 2018 Tesla Model 3 electric vehicle is shown in this photo illustration taken in Solana Beach, California, U.S., June 1, 2018. REUTERS/Mike Blake

NEW YORK (Reuters Breakingviews) - Tesla’s production upshift puts the focus on bigger battles at the $61 billion electric-car maker. Chief Executive Elon Musk had to pull out all the stops to hit his oft-postponed target date for churning out 5,000 Model 3s a week. But it’s an important – and much-needed – victory.

Musk, after all, has developed a reputation for missing self-imposed deadlines that stretches back way before Tesla started building Model 3s last summer. This vehicle, though, is the company’s shot at becoming a mass-market producer – and justifying its $57 billion valuation. So the slew of delays looked like the company was succumbing to what Musk last year called “production hell.”

It hasn’t escaped just yet. Musk achieved his goal only in the final week of the quarter. He had to fly in equipment for an extra production line from Germany and build the line in a massive tent at the company’s Fremont, California plant. Musk even spent part of the final weeks sleeping at the factory to oversee the work.

For Tesla to really cruise, though, the visionary entrepreneur needs to prove he can durably master the nuts and bolts of manufacturing. Musk wants to accelerate Model 3 production to 6,000 a week by the end of August, and the company eventually has to crank out 10,000 a week if it’s going to fulfill the CEO’s target of making 500,000 of them a year. That may explain why the stock faded after an opening bounce to trade more than 2 percent lower at 1:40 p.m. EDT.

Last week’s success, though, shows that Musk can set his mind to the nitty-gritty of the business as well as to laying out grand plans. It will bolster his faithful followers and even give some comfort to less-engaged investors. That will help relieve some of the pressure on Tesla and its boss – and make it easier to raise more capital.

Meanwhile, the ultimate target is fast approaching. Musk has promised that Tesla will be profitable and generate positive free cash flow in the next two quarters – eliminating the need to ask investors for more money, he argues. That would be a bad one to miss.

Breakingviews

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