Tesla’s Model 3 production rates will increase, but it may take longer than expected: Analysts

  • Tesla set a target production rate of 5,000 Model 3s per week by the end of 2018's second quarter. But some analysts say it will take longer.
  • "If they say summer, I would add three months to it," says Jamie Albertine of research company Consumer Edge.
  • Tesla produced 2,020 Model 3s the last week of 2018's first quarter, below the 2,500 target. But investors weren't fazed. Share prices rose about 3 percent Tuesday.

Tesla announced a production target of 5,000 Model 3 sedans per week by the end of this year's second quarter. But it may take longer than expected.

"If they say summer, I would add three months to it," Jamie Albertine of research company Consumer Edge told CNBC.

"They're doing something that is incredibly difficult: building the machine that makes the machine — one of the most automated assembly lines in the history of the global auto industry," he said Tuesday on "Closing Bell."

"They're producing [the Model 3] at an increasingly rapid rate, with quality controls in place," the senior automotive analyst added.

In a fourth-quarter letter to investors, Tesla Chief Executive Officer Elon Musk said the company planned to produce 2,500 Model 3 sedans a week by the end of the next quarter. Tesla missed the mark, making only 2,020 Model 3s the last week of 2018's first quarter. But investors weren't fazed. Share prices rose approximately 7 percent Tuesday before the opening bell. By mid-morning the stock was trading 3 percent higher, around $260 a share.

If Tesla succeeds in hitting its goal, it will not need to raise capital later this year.

But the company has already missed targets, causing doubt among some market watchers.

"We have a great deal of skepticism about the targets that they put out," said Colin Rusch, managing director and senior research analyst at Oppenheimer & Co.

While he said the 2,000-plus vehicles Tesla produced last week was a "great accomplishment," he said he doesn't "see any reason to suggest that they're out of the woods either."

Rusch said some of the challenges that lay ahead for the company are cell production for battery packs and automation for the Model 3 assembly.

"Even if they're able to cobble together a couple of good weeks, that doesn't mean that the sustainable run rate will continue," Rusch said.

The company built 34,494 vehicles during 2018's first quarter — 9,766 of which were Model 3s. First-quarter deliveries of the three Tesla models also set a record with 29,980 vehicles — 11,730 were the Model S, 10,070 were the Model X, and 8,180 were the Model 3.

Still, March was the second-worst-performing month for Tesla shares — down 36 percent since the September 2017 record high of $389.61.