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Tesla has unveiled a new Roadster, the new version of its original sports car. It’s the fastest production car ever made “period,” according to CEO Elon Musk.
USA TODAY

Corrections & clarifications: An earlier version of this story misstated the percentage decline in Tesla’s stock price from its September peak.

Tesla, the upstart that has defied the unwritten rules of the auto industry, is finishing up a year in which the challenges of manufacturing a mass-market electric car in large quantities finally hit home.

After years of bragging about its advanced manufacturing techniques, the Silicon Valley automaker faces a reality check when it comes to making its first mainstream car, the Model 3 electric sedan.

With output failing by a wide margin to meet Musk’s promise of 5,000 vehicles per week by the end of December, Tesla could be facing a make-or-break 2018. The new year may determine whether the company will need to again go hunting for cash and whether it maintains its leadership position in electric vehicles.

Speeding the rollout of the Model 3, which at about $35,000 will be roughly half the starting price of Tesla’s luxury models, is essential to company’s financial health. Reason: Tesla lost several million dollars per day in the third quarter in its rush to begin manufacturing.

“Is this the year investors will say, ‘Enough’s enough,’ or will they continue to fund Tesla?” Autotrader.com analyst Michelle Krebs said. “That’s the big question. I suspect investors would continue funding them if they see progress on the Model 3.

So far, investor enthusiasm remains high. Tesla briefly passed General Motors as the most valuable automaker in the U.S., as measured by stock price and shares outstanding, in April. Tesla shares sailed to an interday high of $389.61 in September but have since settled back 20% to about $312 on Wednesday.

At present, Tesla is valued at about $53.3 billion, less than GM, at $59.4 billion.

Now Tesla’s main focus is on the Model 3, which will require successfully exiting what CEO Elon Musk has called “production hell.” The problems are in stark contrast to the successes that the company has scored in producing two luxury electric-vehicle models, defying the conventional auto industry in the process, and selling cars direct to the public rather than through dealers.

Tesla, which declined an interview request, has denied reports that workers at the automaker’s Fremont, Calif. factory were assembling some parts by hand at one point. But Tesla did acknowledge it hit significant “bottlenecks” in production and Musk said that at one point he was “really depressed” about it.

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Morgan Stanley auto analyst Adam Jonas estimated in a report Dec. 15 that Tesla would make 8,000 Model 3 vehicles in the entire first quarter, falling tens of thousands short of the company’s initial hope. He also estimated that Tesla will burn through another $1.1 billion in free cash flow next year, but that it has “substantial flexibility” when it comes to liquidity and avoiding a cash crunch.

Musk has blamed the company’s underwhelming Model 3 production partially on an unidentified supplier that failed to live up to expectations, causing insufficient production of the critical lithium batteries made at Tesla’s Reno, Nev. factory.

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Tesla’s given us a glimpse of its latest Model 3, and it’s packed with slick improvements. The sensational ride handles itself quite well on all types of terrain. The interior matches Tesla’s exceptional style.
USA TODAY

“It’s our fault for picking the wrong supplier and then not realizing it until way later in the game,” Musk told investors in November.

He also acknowledged that the company had struggled to perfect the newly automated and supposedly extremely advanced processes it designed to make the Model 3.

“There’s vastly more automation with Model 3,” he said. “Either the machine works or it doesn’t [and] it’s lumping along and we get short quite severely on output.”

Separately responding to a Twitter follower on Tuesday, Musk tweeted he’s “dying to build” an electric pickup truck. Musk suggested he would tackle that job after the Model Y, a Tesla crossover SUV that he has hinted about via both Twitter and on a Tesla conference call earlier this year.