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Tesla Has One Big Problem

Elon Musk's electric vehicle (EV) company has done a lot right, but it's facing a pretty big hurdle.

Elon Musk's Tesla (TSLA) had a very successful 2021. The company increased its deliveries, increased its profitability, and generally set the standard for the electric vehicle industry.

CFO Zach Kirkhorn detailed the company's strong year during its first-quarter earnings call.

"We're continuing to make great progress as a company, setting new records on each of the most important financial metrics for Q3. Overall, we delivered just over 240,000 cars, 20% higher than last quarter and 70% higher than the same quarter last year," he said.

Tesla has also improved its ability to produce vehicles and the CFO shared how in his remarks.

We were also able to achieve an annualized production run rate of over 1 million cars toward the end of the quarter. The increase in production rate has primarily been driven by further ramping of the Model Y at our Shanghai factory. Additionally, we have made great progress increasing production volumes of Model S and have recently started the ramp and deliveries of Model X. It will take a bit more time to get this program back to prior volumes, but based on demand, we are targeting to exceed historical production levels.

That's good news for the long-term success of the company, but it's not enough to meet its current demand.

Tesla Can't Keep Up

Tesla has a problem, but in some ways, it's a problem like having no place to store your collection of precious gems or being too good-looking. Kirkhorn explained the problem in his earnings call remarks.

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Despite these increases in production and generally higher prices, our backlogs are continuing to grow and average customer wait times are extending. The only practical way to address this in the immediate term is to do everything we can to build more cars on our existing production lines, which is where we are focused. Similar dynamics are also playing out on our storage business as we are working to expand Powerwall and Megapack production as quickly as parts and cells allow us to do so. Additionally, we have made good progress on the in-house battery manufacturing program, and we're excited to have expanded the full self-driving beta program to more customers.

Basically, Tesla has more orders than it can fulfill and that runs the risk of creating unhappy customers. That's a problem created by great success but being back-ordered and unable to deliver does leave the company vulnerable to customers turning to rivals like Lucid Motors (LCID) , which offers a comparably luxurious vehicle targeted at the same audience.

Don't Expect a $25,000 Tesla

Tesla has long promised to deliver a lower-priced vehicle, specifically one that hits the $25,000 price point. Its current production backlog makes that seem unlikely in the next year.

"We don't want to add any new vehicles to our lineup when we're generally in a cell-constrained world," said Vehicle Engineering Vice President Lars Moravy during the call. "While there is still more runway to grow these existing products, we are focused on Model Y expansion in Austin, Berlin, ramping S and X further in Fremont to restore to past levels while also growing 3 and Y production in Fremont and Shanghai. As we've mentioned before, after Model Y in Austin, our next product launch will be Cybertruck."

Basically, until Tesla can meet the demand for its existing (and future) high-end products, it's not going to put money or production effort into delivering a $25,000 version of the Model 3.