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Tesla's Model 3 volume production target pushed back again

By Alexandria Sage
FILE PHOTO: Tesla Model 3 cars wait for their new owners as they come off the Fremont factory's production line during an event at the company's facilities in Fremont, California, U.S., July 28, 2017. REUTERS/Alexandria Sage/File Photo

By Alexandria Sage

SAN FRANCISCO (Reuters) - Tesla Inc delayed a production target for its new Model 3 sedan for the second time on Wednesday, disappointing investors even as it claimed "major progress" overcoming manufacturing challenges that have hampered the vehicle's rollout.

The electric vehicle maker headed by Elon Musk said it would likely build about 2,500 Model 3s per week by the end of the first quarter, half the number it had earlier promised. Instead, Tesla said it now plans to reach its goal of 5,000 vehicles per week by the end of the second quarter.

The delay sent shares of the Palo Alto, California-based company down 1.8 percent in after-market trading.

The Model 3 is critical to Tesla's long-term success, as it is the most affordable of its cars to date and is the only one capable of transforming the niche automaker to a mass producer amid a sea of rivals entering the nascent electric vehicle market.

Building the car efficiently and delivering it without delays to customers is also critical, as the money-losing company faces high cash burn. Delays increase the risk that reservation-holders will cancel orders.

In delivering 1,550 of its new Model 3 electric vehicles in the fourth quarter, Tesla fell short of Wall Street expectations. Analysts had expected 4,100 Model 3 sedans to be delivered in the fourth quarter, according to financial data and analytics firm FactSet.

The estimates for Model 3 deliveries by different brokerages varied widely. While Evercore analysts estimated 5,800 deliveries, Cowen analysts expected just 2,250.

Tesla said 860 Model 3 vehicles were in transit to customers at the end of the fourth quarter.

The company said it delivered a total of 29,870 vehicles in the fourth quarter, including 15,200 Model S vehicles and 13,120 Model X cars. Analysts had expected total deliveries of about 30,000.

Tesla had initially predicted to reach the milestone of 5,000 vehicles per week in December, but in November deferred the target to the end of the first quarter.

"In the last seven working days of the quarter, we made 793 Model 3s, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3s per week," Tesla said in a statement.

The Model 3 starts at $35,000 or about half the price of its flagship Model S and over 500,000 customers have put down a refundable deposit for the car.

(Reporting by Alexandria Sage in San Francisco and Supantha Mukherjee in Bengaluru; Editing by Shounak Dasgupta and Tom Brown)