The niche carmaker has made inroads among luxury auto buyers with the advanced technology and innovative design in its Model S sedan and Model X SUV.
"While we continue to make significant progress each week in fixing Model 3 bottlenecks, the nature of manufacturing challenges during a ramp such as this makes it hard to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear", Tesla said in the letter.
Big Picture: Tesla stock is falling as production of the Model 3 has been slow.
Tesla said the main constraint it now faced was within its battery module assembly line, where the company had to redesign part of the production process. It had planned to build more than 1,500. "Though results will likely miss expectations, we remain positive on Tesla's shares, believing that deliveries, margins, and cash flow will bottom in Q3 and inflect higher over the next several periods", analyst Romit Shah wrote in a note to clients Tuesday. The problems could also worry the over 500,000 customers who have put down a refundable deposit on the vehicle.
Tesla echoed Tsuga's comments in its letter, saying that once the production line is automated, the number of Model 3 vehicles produced will rise.
Tesla's CEO Elon Musk had to deliver more bad news today: the company lost more money than expected last quarter.
Tesla could face major new requirements for cash given Model 3 problems, a possible factory in China, and plans to develop other vehicles, including an electric heavy duty truck. Tesla said net orders for those vehicles hit a record level in the third quarter, setting the stage for record deliveries in the fourth quarter.
Tesla's continued need for cash is exacerbated by Musk's insistence on vertical integration, such as making its own batteries and selling cars directly to customers. Shares of far larger automaker General Motors have climbed about 23 percent, while Ford shares are up almost 2 percent. The company says it's on track to deliver 100,000 Model S and Model X vehicles in 2017, up 30 percent from 2016.
Revenue was a stronger point for the automotive company, coming in at $2.98 billion, ahead of the $2.39 billion that analysts called for. The company said installations for its energy storage business more than doubled from a year ago.