Business News

CCTV Script 26/01/18

— This is the script of CNBC's news report for China's CCTV on January 26, Friday.

Tesla's future as a mass-market carmaker hinges on automated production of the Model 3.

Earlier this month, Tesla reported 29,870 cars delivered for the 4th quarter. The Model S led with 15,200 finding customers, followed by the Model X at 13,120. The Model 3, which only recently started reaching a significant number of customers, tallied 1,550 deliveries in the quarter.

Recent positive sentiment also came from the statement of Tesla that in the last seven working days of the quarter, the company made 793 Model 3's, and in the last few days, Tesla hit a production rate on each of the manufacturing lines that extrapolates to over 1,000 Model 3's per week. Therefore, it may have been a rough 2017 for Tesla, but this automaker is expected to boast its production for this year, 2018.

However, Tesla's problems with battery production at the company's Gigafactory in Sparks, Nevada, are worse than the company has acknowledged and could cause further delays and quality issues for the new Model 3 - that is what a number of current and former Tesla employees told CNBC. These problems include Tesla needing to make some of the batteries by hand and borrowing scores of employees from one of its suppliers to help with this manual assembly.

The company has already delayed production, citing problems at the Gigafactory. On Nov. 1, 2017, CEO Elon Musk assured investors in an earnings call that Tesla was making strides to correct its manufacturing issues and get the Model 3 out.

But more than a month later, in mid-December, Tesla was still making its Model 3 batteries partly by hand, according to current engineers and ex-Tesla employees who worked at the Gigafactory in recent months. They say Tesla had to "borrow" scores of employees from Panasonic, which is a partner in the Gigafactory and supplies lithium-ion battery cells, to help with this manual assembly.

Tesla is still not close to mass producing batteries for the basic $35,000 model of this electric sedan, sources say. These people requested anonymity as they are not authorized by the company to talk to the press.

A Tesla spokesperson told CNBC: "Until we reach full production, by definition some elements of the production process will be more manual. This is something Elon discussed extensively on our Q3 earnings call, and it has no impact on the quality or safety of the batteries we're producing."

Meanwhile, bears are growing more skeptical by the day.

Tesla's shares went down 2.39% at the close, hitting the lowest price since Jan 12, however, share prices rebounded to some degree during the after-hour trading.

What's also interesting is that right before this production rumor, Tesla released a new compensation plan for the company's founder and CEO Elon Musk, with payments dependent on massive increases in the electric car maker's stock market value.It means, the higher Tesla's stock price goes, the more Tesla stock Musk gets.

The eye-popping part is that the plan sets market value targets in 12 increments, starting at $100 billion and topping out at $650 billion. Remeber, the company's current market value is only about $59 billion. Therefore, for Musk to receive the maximum compensation, Tesla's market capitalization would have to swell more than 10 times to $650 billion over the next 10 years.

To get there, for now, Elon Musk will have to convince investors by proving the Model 3's production capability.