Shares of Tesla Inc reversed course to trade down 4 percent on Monday after Wall Street analysts questioned the electric carmaker`s ability to maintain an increase in production that helped it meet a long-elusive target of making 5,000 Model 3 vehicles per week.
Tesla`s heavily-shorted shares rose as much as 6.4 percent to $364.78 in early trading, after it reported producing 5,031 Model 3 cars in the last seven days of the second quarter.
But the stock sank after several analysts questioned whether Tesla would be able to sustain the Model 3 production momentum, which is crucial for the long-term financial health of the company.
"In the interim, we do not see this production rate as operationally or financially sustainable," said CFRA analyst Efraim Levy. "However, over time, we expect the manufacturing rate to become sustainable and even rise."
Levy cut CFRA`s rating on Tesla stock to "sell" from "hold."
Tesla, which Chief Executive Elon Musk hailed on Sunday as having become a "real car company," said it now expects to boost production to 6,000 Model 3s per week by late August, signaling confidence about resolving technical and assembly issues that have plagued the company for months.
Tesla also reaffirmed a positive cash flow and profit forecast for the year. Musk had first said in April that the company will be profitable in the third and fourth quarters of this year and will not have to raise any money.
However, it has been burning through cash to produce the Model 3, and delays have also potentially compromised Tesla`s position in the electric car market as a host of competitors prepare to launch rival vehicles.
Production of the mass-market Model 3 sedan has been hampered by several issues, including problems with an over-reliance on automation on its assembly lines, battery issues and other bottlenecks.
To meet its goal, Tesla had set up a new production line inside a tent on the campus of its Fremont factory. The company said the new general assembly line was responsible for about 20 percent of Model 3s produced last week.
The company also ran two 12-hour shifts every day in the last week of June, workers had told Reuters.
"There`s a big difference between making 5K Model 3 units for 1 week vs. sustaining 5K per week," Morgan Stanley analysts said.
Model 3 production tripled to 28,578 in the company`s second quarter from the previous quarter, Tesla said.
The company said 11,166 Model 3 vehicles were in transit to customers at the end of the second quarter, and would be delivered early next quarter.
Reservations at the end of the second quarter stood at roughly 420,000. Tesla has delivered 28,386 Model 3 cars to date. Model 3 reservations totaled 450,000 at the end of the first quarter.
"This is very positive news for Tesla because the Model 3 takes them from a niche core producer to a mainstream automobile manufacturer," Tigress Financial Partners analyst Ivan Feinseth said.
The company said it expects orders to grow faster than production rate after it starts allowing potential customers to see and test drive Model 3s at local stores.
Despite originally touting the Model 3 as a $35,000 vehicle, Tesla has yet to begin building that basic version and instead is currently building a higher-priced version as it tries to come out of "production hell."
"The last 12 months were some of the most difficult in Tesla`s history," the company said in a statement.
Tesla stock rose 10 percent on June 6 when Musk said he was on track to hit the 5,000 weekly target and it continued to rise for much of June ended trading Friday 17.8 percent higher than its June 5 close. [L1N1TY0SG]
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