Tesla’s Model 3 production problems back in spotlight

It’s back to ‘manufacturing hell’ for Elon Musk.

Tesla workers assembled cars at the company’s factory in Fremont, California. Picture: Getty Images

It’s back to “manufacturing hell” for Elon Musk.

Now that Mr Musk has squashed efforts to take Tesla private, the spotlight will turn back to the carmaker’s operational challenges, namely whether it can maintain its gruelling production pace for the Model 3 to meet customer demand and generate cash to stave off fundraising.

Tesla’s shares fell 1.1 per cent to $US319.27 on Monday as investors digested the 17-day drama that began on August 7 with a shocking tweet from Mr Musk saying he was considering taking the company private at $US420 a share. As details emerged, however, it became clear that a deal was far from ­finalised as he and Tesla directors raced to put in place financial and legal teams needed to seal a deal.

Mr Musk pulled the plug on the suggestion last Thursday in a meeting with his board at the carmaker’s Fremont, California factory, and then announced the decision late on Friday after the market closed.

Staying public means Mr Musk will need to continue answering to shareholders about periodic goals, while fending off investors shorting the company’s stock.

Analysts on Monday were quick to question Mr Musk’s credibility and Tesla’s financial prospects now that the carmaker isn’t tapping investors for more money.

“His credibility has taken a hit — there’s no question about it,” said Gene Munster, managing partner at investment and research firm Loup Ventures. “The more important question is: will it recover?”

Ryan Brinkman at JPMorgan had already cut his estimate for Tesla’s share price to $US195 ahead of Mr Musk’s announcement on the revelations that a deal wasn’t as close to completion as it initially appeared.

Following Friday’s announcement, Philippe Houchois, an analyst for Jefferies, warned clients to expect a hit to shares on Monday, noting “more erratic corporate behaviour” by Tesla.

“We wonder if the ‘going private’ tweet has effectively put Tesla in play and may lead to additional discussions with other investors, mainly corporates, that value Tesla’s vision and can help bridge gaps in growth and execution skills,” he wrote.

Among those who are scrutinising Mr Musk’s August 7 tweets are the Securities and Exchange Commission, which is examining Mr Musk’s claim to have “funding secured” for a deal.

Some analysts and investors were sanguine about Tesla’s decision to stay public. ARK Invest, a Tesla shareholder, said it was “delighted” because it believed Tesla’s stock could be worth far more as a public company.

“We are not surprised that the bid failed, as there were many hurdles to leap,” Efraim Levy, an analyst for CFRA Research, said in a note on Monday.

In his late night posting on Friday, Mr Musk noted the distraction that the proposal had become, something unwelcome as he tries to focus the company on building the Model 3.