MarketWatch First Take: Tesla has not lived up to Elon Musk’s biggest promise yet

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Elon Musk and Co. are doing another victory lap Monday, after Tesla Inc. achieved a major production milestone, but Musk’s biggest promise to investors is far from secure.

Tesla TSLA, -0.55%  announced early Monday that it produced 5,013 Model 3 cars in seven days, achieving the production rate that Musk had previously promised would happen last year. Tesla employees have reportedly been working around the clock, even building a temporary tent in the parking lot of the company’s Fremont, Calif., plant to speed up a production process that was flawed by an early reliance on too much automation.

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Now that Tesla has belatedly lived up to that promise, it has to live up to a much bolder one and refute one of the few complaints about the electric car company that Musk has admitted is a legitimate beef. Tesla has to become profitable, and fast.

In Monday’s announcement, Tesla again reiterated its guidance for positive GAAP net income and positive cash flow in the second half of this year, despite negative pressures from a weaker U.S. dollar and the expectation of higher tariffs on vehicles being imported into China and on components procured there. The company made this promise initially in early May, when it hosted one of the most bizarre earnings conference calls in recent memory, during which Musk took a victory lap while announcing the most unprofitable quarter in Tesla history and rudely dismissed analysts’ legitimate financial questions.

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As the past quarter has unfolded and brought even more craziness and frantic changes to Tesla, Musk’s May hubris has looked even more silly. Monday morning, Tesla investors took to Twitter for a similarly early celebration, as those watching the numbers attempted to offer some perspective.

CFRA analyst Efraim Levy lowered his rating on Tesla to a sell from a hold, noting that the current production rate is not “operationally or financially sustainable.” He also pointed out that the company’s request for additional cash deposits of $2,500 from reservation holders seemed to be an “aggressive attempt to meet otherwise difficult targets of being cash flow positive in Q3.”

Karl Brauer, executive publisher of Autotrader and Kelley Blue Book’s KBB.com, cautioned that there are more important numbers than production totals, especially the number of Model 3 cars that customers actually receive. Tesla said on Monday that at the end of the quarter, it had about 420,000 reservations for Model 3s, and that it has delivered 28,386 to date, with more than 11,000 in transit.

Tesla will have to continue to ramp production and ensure that those reservations turn into actual deliveries to reach its profitability goal. It expects to increase its production of Model 3s to 6,000 a week by the end of next month, even as it admits in its press release that it was “not easy” to get to 5,000 amid the most difficult year in its history.

Musk has largely failed to live up to deadlines, and has largely proven that he will forego financial security in pursuit of his larger ambitions. For investors, belatedly living up to a promise Monday is not enough, and none should be doing a victory lap until we actually see black ink in the second half of this year.

Tesla stock movement suggested that many are waiting to see what the effects of the company’s production ramp are financially, as early gains fell to daily declines of nearly 3% in Monday trading. Tesla shares have soared 38% in the past three months and are up about 7% so far this year, while the S&P 500 SPX, +0.86%  has gained 1.3% in 2018.