When reporting last night how Elon Musk may have sabotaged his own Tesla “going private” transaction (by leaking details of Saudi involvement which promptly scuttled any further interest from the country’s notoriously shy sovereign wealth fund), we noted that a bigger problem for Tesla than even the legal challenges faced by Musk including an SEC probe and a growing number of shareholder lawsuits, is that the announcement to end the MBO raised even more questions open about where he and the electric-car maker go from here.

After all leaving ownership as is puts the scrutiny back on Musk’s “all-consuming work style, the company’s tricky cash position, its ability to meet mass-market production goals, and the independence and oversight of Tesla’s board.”

But most of all, what’s going on with Model 3 production.

In terms of next steps, the next measure of how (if) Tesla bounces back will come in early October, when the company reports third-quarter production and deliveries: as a reminder, Tesla guided that it expects to produce 6,000 Model 3s per week by late August.

And, as we said last night, this may be a major problem and potentially the reason behind the entire “going private” soap opera, because as some independent observers have noticed, there suddenly appears to be a “significant production problem at Fremont”, perhaps the true catalyst behind Musk’s catastrophic approach to disclosing his going private intentions.

In other words, countless distractions aside, investor attention is once again glued on just one thing: how many Model 3s can Tesla produce, and tied to that, whether user demand for the car is still rising or falling.

Now, according to Electrek – a website many describe as “market testing” and leaking “soft PR” for Tesla – things are not going quite as planned: specifically, while overall output is rising once again, “the company is behind on its Model 3 production goal.”

A “reliable source” told Electrek that Tesla produced just over 47,000 vehicles throughout the third quarter as of last week.

At the current rate, Tesla will end the quarter with over 70,000 vehicles produced. In comparison, Tesla produced 53,339 vehicles during the last quarter, which was also a new record for the company. The automaker is on track to achieve the same level this week with still a whole month left in the quarter.

And while Model 3 production is responsible for the impressive increase and the automaker has already produced more Model 3’s in the last two months than during the entire previous quarter, “it is still behind its goal” and according to the same source, Tesla produced just under 30,000 Model 3 vehicles so far during the quarter.

It means that Tesla is on pace to end up just below the lower end of its goal to produce between 50,000 to 55,000 Model 3 vehicles in the third quarter.

The problem: following an output burst at the end of the second quarter, which required the use of a tent in which to produce new Model 3s, “the company hasn’t been able to go back to a production of 5,000 units in a single week.” Electrek adds:

During the current quarter, Model 3 production is still very volatile and it has been limited to about 3,500 to ~4,900 per week based on a 7 day moving total. It could still achieve its production goal if it starts trending higher next month.

Putting this number in context, Musk has been aiming for 6,000 units per week by the end of August – i.e. right now – and that would mean a more than 30% jump in production week over week to be achieved by the end of this week.

Commenting on this delta, even Electrek’s editor-in-chief is skeptical:

“I find it to be unlikely, but Tesla has achieved more difficult things in the past.”

And from production follow profitability (or lack thereof): Tesla is attempting to be profitable during the quarter which it can only achieve depending on Model 3 production, “which needs to increase in terms of quantity and achieve a higher gross margin.”

While Model 3 output is clearly below guidance, what is unclear is whether this is due to ongoing production bottlenecks which, at least in theory, can be resolved: after all nothing prevents Musk from erecting another tent. The far greater risk to the bull case is if after all the drama, the company is merely responding to a collapse in Model 3 demand. There is nothing Musk can do if the Tesla “magic” has finally died.

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