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July 4, 2017, 2:46 a.m. EDT

Tesla quarterly sales hit by production shortfall

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By Tim Higgins

Tesla Inc. on Monday said production shortfalls hindered sales during the second quarter, hours after Chief Executive Elon Musk signaled an even tighter timetable for the auto maker's ambitious plans to produce its new Model 3 sedans.

The Silicon Valley auto maker said it sold about 22,000 Model S and Model X sport-utility vehicles during the period ended in June, up about 53% from a year earlier.

With 47,100 vehicles delivered in the first half, Tesla just met its goal of delivering 47,000 to 50,000 vehicles. But the quarterly results were short of the average estimate of 23,655 deliveries, according to four analysts surveyed by The Wall Street Journal.

Tesla said sales could have been stronger if not for a "severe production shortfall" of battery packs, which until early June caused production to average about 40% below demand. "Once this was resolved, June orders and deliveries were strong, ranking as one of the best in Tesla history," the company said in a statement.

The company said it expects to deliver more Model S and Model X vehicles in the second half than in the first six months, "provided global economic conditions do not worsen considerably."

Tesla's jump in second-quarter sales bucks the trend among auto makers such as General Motors Co., Ford Motor Co. and Fiat Chrysler Automobilies NV, which earlier Monday reported steep sales declines in June compared with a year ago.

Tesla is far smaller than those auto makers by sales, but it aims to become more of a mainstream player with the rollout of its newest car, the Model 3, which at $35,000 is far less expensive than its two existing models and is central to the company's plans to sharply increase total sales.

On Sunday night Pacific time, Mr. Musk tweeted that he aims to have 30 vehicles ready to hand over to customers on July 28, followed by 100 cars in August and 1,500 in September.

That initial plan appears slower than one Mr. Musk laid out in February, when he revealed he was pushing suppliers to be ready for a weekly run rate of 1,000 vehicles in July to 2,000 in August and 4,000 in September.

However, Mr. Musk's tweet, sent shortly after 11 p.m. PDT Sunday, said Tesla plans to hit a rate of 20,000 Model 3s a month in December, in line with his previous pledge of having 5,000 vehicles a week by year's end.

In February, Mr. Musk suggested the targets were set for suppliers, knowing they could slip. "These are parts orders and the parts need to arrive, then you can turn into a car and the car needs to be delivered to customers," he said in February on an earnings conference call. "None of these things occur instantaneously."

"This is definitely scaling back," said Rebecca Lindland, an analyst for the automotive researcher Kelley Blue Book. She likened Mr. Musk's early statements about production to stretch goals instead of plans.

The Model 3 is part of Mr. Musk's strategy to boost production next year to 500,000 from about 84,000 last year, turning the auto maker into a more mainstream player from a niche luxury brand. General Motors Co., for example, sold 10 million vehicles last year.

Enthusiasm for Tesla and its new model has helped push the company's shares to record highs, giving the Silicon Valley auto maker a market capitalization higher than GM and Ford Motor Co.

On Monday, Tesla's stock fell 2.5% to $352.62 and were trading slightly lower in the after-hours. The shares are up about 65% this year.

Write to Tim Higgins at Tim.Higgins@WSJ.com

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