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In the third quarter, Tesla burned through $1.42 billion, down slightly from $1.21 billion in the second quarter, which equates to about $16 million being spent daily. Despite reporting revenue of $2.985 billion for the quarter — a 30% year-over-year increase — the company suffered a massive net loss of $671 million. This marked not only a sharp reversal from the $22.18 million profit recorded in the same period last year but also its largest quarterly loss since its founding. The loss exceeded Wall Street’s expectations of $531 million, signaling serious challenges ahead.
Tesla attributed the losses primarily to production issues with the Model 3, particularly at the Gigafactory where bottlenecks occurred in the battery module assembly line. To address this, the company reduced production of the Model S and Model X by 10% in the fourth quarter to reallocate resources and focus on resolving the Model 3 bottleneck. Elon Musk acknowledged the difficulties, stating, “The production process of the Model 3 is very large. We can only eliminate the least efficient programs as soon as possible.â€
Production figures for October were particularly concerning, with only 260 Model 3 vehicles produced, far below the target of 1,500. Musk described the situation as “deep in production hell,†highlighting the severe strain on the manufacturing process. Analysts noted that these bottlenecks and the resulting financial losses were not anticipated, and Tesla now faces pressure from both investors and customers, as it struggles to meet its production goals. Earlier, Musk had promised to produce 20,000 Model 3s by December, but by October 2, only 260 had been made.
Tesla explained that the initial phase of producing a new model is always challenging, and the Model 3 is no exception. However, the company's focus on automation is expected to lead to long-term improvements in efficiency and output. Musk, however, admitted that predicting when all bottlenecks will be resolved remains uncertain.
In addition to production woes, Tesla announced the layoff of 700 employees — the first time the company officially acknowledged such a move. Musk claimed the cuts were due to poor individual performance, and the 700 layoffs accounted for about 2% of Tesla’s 33,000 employees. However, the specific departments affected were not disclosed.
This isn’t the first round of layoffs at Tesla. In August, the company fired 204 employees at Solar City in California, and in October, more staff were let go due to performance issues, though the exact numbers weren’t released. Meanwhile, executive turnover has also increased. Battery director Jon Wagner left in November, reportedly starting a new battery and power delivery startup. Since the start of the year, at least 17 executives have departed, raising concerns about leadership stability.
Adding to Tesla’s troubles, U.S. media reported that the new Republican tax reform plan could eliminate the $7,500 federal tax credit for electric vehicles. For Tesla, which relies heavily on this incentive, the potential loss would be a significant setback.
As a company known for high spending, Tesla’s ability to attract investor support remains crucial. It has already used 80% of the $3.2 billion raised through debt issuance in March. The company’s outstanding debt is now nearly $10 billion, underscoring its financial challenges.
Whether Tesla can overcome its current difficulties depends largely on how quickly it can resolve the Model 3 production issues. Success in scaling up production will be key to regaining confidence in the capital markets and securing the future of the company.