Cars

Tesla Stresses Quality Over Quantity as Model X Deliveries Begin

Tesla Model X Review: Electric Luxury
  • Need for smooth rollout critical ahead of Model 3 in 2017
  • Shares slump as shipment of 208 SUVs trails some forecasts

Tesla Motors Inc.’s slow rollout of the Model X sport utility vehicle shows the maker of electric cars is emphasizing quality over quantity to protect its brand image after hiccups earlier in 2015.

Following a splashy introduction of the SUV in late September and a backlog of thousands of orders, Tesla went on to deliver 208 Model Xs in the fourth quarter. That’s less than half the 507 it actually built and below some analysts’ projections. One reason, Tesla said Sunday, is that in the early stages of production it will “prioritize quality above all else.”

Tesla may have learned from a fresh, painful lesson: In late October, its shares slid the most in more than two months after Consumer Reports, the product-reviewer that once extolled the virtue of its Model S luxury car, pulled the vehicle from its recommended list because of below-average reliability. The automaker needs to ensure a smooth reception for the SUV ahead of the planned 2017 rollout of the Model 3, a less expensive sedan that’s designed to put the brand finally within reach of the mass consumer.

“It’s important for Tesla to go through these growing pains now so that it can learn and refine its process,” said Jessica Caldwell, an industry analyst at Edmunds.com. “You can bet that there will be many, many more people lining up to buy a Model 3, and Tesla will have far less margin of error to meet those deliveries.”

The Model 3 is key to the Palo Alto, California-based company’s plan to sell 500,000 cars annually by 2020. The Model S sedan and Model X are produced on a shared assembly line at its factory in nearby Fremont.

Tesla shares slid 6.9 percent -- the most since August -- on Monday, one day after the company said it delivered 17,400 vehicles in the quarter and 50,580 for the year. The annual total was in the low end of the range of 50,000 to 52,000 that Chief Executive Officer Elon Musk projected in November. By comparison Ford Motor Co. sold 65,192 F-series pickup trucks that month alone.

Stock Slump

The stock’s decline came amid a broad selloff in the U.S. and other world stock markets on concern about slowing growth in China. That also bears on Tesla, which is counting on China as its newest major market.

Tesla, in its statement on Sunday, said that in the final week of 2015 it was producing SUVs at a daily rate equaling output of about 238 a week. Ben Kallo, an analyst at Robert W. Baird & Co., had estimated Tesla would deliver about 1,000 Model Xs in the fourth quarter.

“We remain on the sidelines until we see further clarity around the Model X ramp and the Model 3 reveal,” Kallo, who rates the shares neutral, wrote in a research note published early Monday.

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