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Tesla shares are falling on a report the company is having problems automating its production line for its new Model 3 vehicles. But the company says the report is "fundamentally wrong and misleading."
The Wall Street Journal reported after the market close Friday that Tesla was building "major portions" of the Model 3 car by hand away from the automated production line as of early September, according to people familiar with the matter.
Tesla shares declined 2.2 percent shortly after Monday's market open.
The ability of the company to meet Model 3 production targets is a major concern of Wall Street's Tesla skeptics.
In the third quarter, Tesla delivered 26,150 total vehicles and just 220 Model 3 cars versus the FactSet estimates for 25,860 and 1,260, respectively. Goldman Sachs has focused on the Model 3 miss due to its importance to the company's future.
The firm reaffirmed its sell rating on Tesla shares earlier this month, predicting in a note to clients last week that Model 3 production will be slower than expected.
We "maintain our more cautious ramp of Model 3 deliveries which fell below our Street-low estimate for the quarter. We believe this likely puts downward risk to the company's communicated S-curve to the Model 3 production ramp," Goldman analyst David Tamberrino wrote in a note to clients on Oct. 3. "We continue to maintain our more cautious Model 3 ramp, which is far below company targets."
The analyst has a $210 six-month price target for Telsa, representing 41 percent downside to Friday's close.
In similar fashion, Bernstein is also concerned about Tesla's ability to profitably manufacture the new Model 3.
"We worry about whether Tesla can successfully build the mass-market Model 3: (1) with good gross margins, (2) with good quality, and (3) on time," Toni Sacconaghi wrote in a note to clients on Sept. 27.
Sacconaghi has a market perform rating and $265 price target on Tesla shares.
Tesla CEO Elon Musk responded Sunday to The Wall Street Journal report with a video of the Model 3 automated production line on Instagram.
The company's shares are outperforming the market this year, up 67 percent year to date through Friday compared with the S&P 500's 14 percent return.
A Tesla spokesperson sent the following statement in response to this story:
"This reporting is fundamentally wrong and misleading. We are still in the beginning of our production ramp, but every Model 3 is being built on the Model 3 production line, which is fully installed, powered on, producing vehicles, and increasing in automation every day. However, every vehicle manufacturing line in the world has both manual and automated processes, including the Model S and Model X line today. Contrary to the Journal's reporting, this is not some revelation. As we've always acknowledged, it will take time to fine-tune the line for higher volumes, but as we have also said, there are no fundamental issues with Model 3 production or its supply chain, and we are confident in addressing the manufacturing bottleneck issues in the near-term. We are simply working through the S-curve of production that we drew out for the world to see at our launch event in July. There's a reason it's called production hell."
The company told The Wall Street Journal that the paper has "relentlessly attacked Tesla with misleading articles," according to the Journal's original story.
"The Journal disagrees with the company's categorization of its journalism," WSJ said in the story Friday.
Musk acknowledged Model 3 production bottlenecks in a tweet Friday.