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Tesla's New Model 3 Announcement Makes Investors Forget About An Ugly Q4

Investors have been selling off Tesla stock due to fears that the electric carmaker can't stick to production timelines.

[Photo: Flickr user atomic80]

Before announcing ugly earnings numbers Wednesday, Tesla dropped the news that it will roll out a prototype of its much-anticipated new "mass market" vehicle, the Model 3, on March 31.

This seemed to have cheered investors mightily, as the Tesla stock spiked up more than 20% to $162 per share in after-hours trading. By 8 p.m. Eastern Time the price had returned to $157.50.

When the stock closed the trading day at $143.67, it had lost roughly a quarter of its value since the beginning of the month. The company’s stock fell 9% to $147.99 Monday, its lowest point since January of 2014.

Tesla Motors Inc. (TSLA) Street Actual & Estimate EPS - Last 5 Quarters

Investors had been worried about the timetable and production ramp for the new Model 3 automobile in particular, and about Tesla's capacity for rolling out new cars in general.

The Model 3 will be Tesla's first real mass market product. It's expected to sell for as little at $25,000 after government incentives are applied. Tesla CEO Elon Musk says his company expects to begin to "produce and deliver" the Model 3 "at the end of next year." The Model 3 is expected to compete with the BMW 3-Series and the Audi A4.

In the fourth quarter, Tesla said it lost 87 cents per share, far more than the 10 cents per share earnings analysts had expected. It missed on revenues, too, reporting $1.75 billion for the quarter, compared with the 1.79 billion analysts had expected.

Tesla Motors Inc. (TSLA) Stock Price

In the fourth quarter of 2014, Tesla reported an adjusted loss of 13 cents per share on sales of $1.095 billion.

Musk began the earnings call with analysts Wednesday with some positive top-line bullet points. He said Tesla increased its vehicle deliveries by 76% in the fourth quarter over the same quarter in 2014.

"Tesla is approximately doubling its cumulative sales every year," Musk said. "We expect to be at positive cash flow starting next month, and continuing into Q2," he added.

During the conference call, analysts asked question after question about the carmaker’s ability to produce more and more cars in 2016 and beyond. Overall, the Palo Alto, Calif.-based automaker produced just more than 50,000 vehicles last year, and is said to be tracking well behind the 80,000 to 85,000 quarterly production number it needs to stay on pace to reach its yearly production goal in 2020. Tesla expects to produce 16,000 cars this quarter.

Tesla has indeed been struggling to overcome production issues around its new Model X CUV (crossover utility vehicle). "The past several months have been quite excruciating . . . many nights and weekends," Musk said. "But we're through the worst of it, I’d say."

Hiring at Tesla's new Gigafactory battery plant in Nevada has been the subject of a number of negative press reports during recent months. But Tesla says it hired 272 out of the 300 employees it planned to hire during 2015. Musk said production of battery packs is also on track with plans. A portion of the batteries produced at the plant will be used in the Model 3.

"To the best of our knowledge you should not worry about the Gigafactory being a constraint on the Model 3," Musk said.

CORRECTION: An earlier version of this story incorrectly referred to the Model 3 as the M3 in places, and stated that Tesla will show the new Model 3 on March 1. The new car will be shown on March 31.