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Business / Auto China

Tesla cuts annual sales targets after struggle to maintain steady flow of parts

(Agencies) Updated: 2015-08-07 09:50

Shares in Tesla Motors Inc fell in extended trading after the electric-car manufacturer cut its full-year vehicle sales forecast.

Tesla said it now aims to deliver between 50,000 and 55,000 vehicles this year, compared with a previous target of 55,000. The company sees third-quarter production and deliveries of just more than 12,000 vehicles including just a few Model X sport utility vehicles.

Reaching the initial target may be a stretch because some interior suppliers might not be able to increase the flow of high-quality parts fast enough to meet the Model X production plan, Chief Executive Officer Elon Musk told a conference call with analysts.

Because the SUV and the existing Model S share the same assembly line, a shortfall by one Model X supplier could slow output of both vehicles.

"The pace of progress is really dependent on which supplier is the slowest and least lucky," Musk said. "It's a complex product, with thousands of suppliers."

Some analysts had been skeptical about Tesla's plans to increase deliveries by 74 percent this year, especially with so much of the increase coming late in the year.

Musk insisted that the SUV will be worth the wait.

"The Model X is a particularly challenging car to build, maybe the hardest in the world," he said. "But it is an amazing vehicle and I think it will blow people away."

The company said it still expects to begin delivering the SUVs in late September and that final testing is "going well". But even a one-week delay could reduce output by 800 vehicles, Tesla said.

"Simply put, in a choice between a great product or hitting quarterly numbers, we will take the former," Musk and Chief Financial Officer Deepak Ahuja said in a letter to shareholders, posted on the company's website.

Musk said in the letter that second-quarter Model S orders in Asia "nearly doubled from last quarter, helped by the initial success of our revised China strategy".

Tesla said last quarter that sales in China are "showing encouraging signs".

The world's largest auto market has the potential to become Tesla's biggest customer base, too, but concerns about charging and early mistakes by the sales staff stymied the company's entry. Now the market is slowing a bit and China's SUV-loving consumers will not get the Model X until the first half of next year.

Tesla shares fell 5.8 percent to $254.35 in New York on Wednesday after tumbling as much as 9.3 percent in regular trading.

Tesla had gained 21 percent this year through Wednesday's close, outpacing the 2.4 percent increase by the Russell 1000 Index.

The loss excluding some items was 48 cents a share, the California-based company said. The average of estimates compiled by Bloomberg was for a 60 cent loss.

The Model X had previously been targeted to go on sale in 2013, then by the end of 2014.

"We have been producing release candidate Model X bodies in our new body shop equipped with more than 500 robots as we fine-tune and validate our production processes," Tesla said in the letter.

As production of the SUV increases, the company will become free cash-flow positive, probably near the end of this year and "certainly" for the first quarter of 2016, Ahuja said.

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