Shares of Tesla Inc. (TSLA) started off the week with a clunk, dropping 3.9% in Monday's session on concerns over the firm's Model 3 production holdups.
Tesla fell short of its Model 3 delivery goals during the third quarter, only producing 260 Model 3s during the stretch. That's well short of the 1,500 Model 3 vehicles that Tesla had planned on producing for the quarter. Tesla blamed the 80% shortfall on temporary production bottlenecks.
But it gets worse.
The Wall Street Journal reported over the weekend that parts of Tesla's Model 3 were being made by hand. If that were true, it would be a very worrying revelation -- particularly as the Model 3 is being touted as Tesla's first "mass market" automobile.
Thing is, those concerns sound like they came from somebody who's never actually walked inside a car factory during a platform launch.
As Elon Musk has shown, the Model 3's automated production line is up and running -- it's just running at an artificially slowed 1/10th speed in order to catch potential problems with the way the production line is configured. That's not a rare thing. It's how production ramps begin.
I was in Tesla's enormous Freemont car factory back in 2012, when the very first few production Model S cars were slowly rolling down the sole production line. It was the exact same story back then.
The first phase of an automotive production ramp is, by its nature, more hands-on than many people realize. That's because if, say, a weld is misaligned, automakers tend to manually fix the weld rather than throw the car in the dumpster. More likely than not, this is the level of "hand work" going into the Model 3 as the bugs get worked out of the production line.
Once those bugs are worked out at low speed, however, the line is brought up to full speed and the production ramp becomes exponential:
In other words, Tesla's production miss on the Model 3 isn't nearly as material as it might appear to be on paper. In the early stages, even just a couple of days can make up the sort of production miss that we saw in the third quarter.
And the firm's decision to pause its semi-truck unveiling and put some of those resources on speeding up Model 3 production shows that Elon Musk and company are trying to make sure that they don't disappoint in Q4.
Meanwhile, shares of Tesla continue to look like they're on the brink of a major breakout:
Shares are forming a textbook example of an ascending triangle pattern, with $380 resistance as the breakout level to watch. Simply put, if Tesla can crack that $380 level, shares are likely to follow up with substantial upside.
If you're looking for a buying opportunity in shares of this momentum mover, the next high-probability buy signal comes on a breakout through that $380 line in the sand.
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