Tesla falls on Model 3 production delay, but analysts upbeat

(Reuters) - Tesla Inc (TSLA.O) shares fell 3.5 percent in premarket trading on Thursday, setting the company up to lose nearly $1.9 billion in market value after it pushed back a production target for its much-anticipated Model 3 sedan yet again.

Analysts, however, stayed upbeat, saying the electric car maker had finally set an achievable target for their mass-market sedan that is priced at $35,000.

Tesla said on Wednesday 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. The company now expects to reach its goal of 5,000 vehicles per week by the end of the second quarter.

“We believe that Tesla may have finally set a beatable production target,” Nomura Instinet analyst Romit Shah wrote in a note to clients.

“Importantly, we believe that Tesla is prioritizing quality control. While Tesla’s repeated guidance revisions could begin to risk damaging its elite brand, a mass-recall would probably be far more damaging,” he said.

Tesla shares fell to $306.06 in premarket trading on Thursday. The median price target on the stock is $310 and eight of 25 brokerages covering the stock rate it “buy” or higher. Eight have a “hold” rating and the rest a “sell” or lower.

The company, headed by Elon Musk, has been struggling to overcome production bottlenecks and reported its biggest-ever quarterly loss in the third quarter.

Tesla’s luxury Model S sedans and Model X SUVs regularly require fixes before they can leave the factory and quality checks have routinely revealed defects in nearly all of these models inspected after assembly, Reuters reported in November, citing sources.

Tesla has maintained that its quality control process is unusually rigorous.

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

Morgan Stanley analyst Adam Jonas said he expects Tesla shares to be very volatile in 2018 as the company seesaws between dealing with increased competition and seeing production bottlenecks ease with strong cash inflow.

But most analysts stayed bullish on the stock on Thursday and said they continued to believe that sales of the Model 3 sedan could transform the niche automaker into a mass producer, giving it an edge over a host of rivals such as General Motors Co (GM.N) and BMW (BMWG.DE) who are entering the nascent electric car market.

“Given that TSLA received over 400k Model 3 reservations with essentially no marketing, we believe potential demand for the vehicle is likely underestimated, and think TSLA could significantly increase demand through its own advertising in the future,” Baird Equity Research analyst Ben Kallo said.