(Bloomberg) -- Elon Musk ratcheted back Tesla’s sales targets and said the company is facing challenges with seats and other interior pieces on the Model X, deliveries of which are set to begin in late September.
"Our biggest challenges are with the second-row seat,” Musk, Tesla CEO, said during a conference call with analysts on Thursday. “It’s an amazing seat, a sculptural work of art, but a very tricky thing to get right.”
Some interior trim components could become roadblocks, but the so-called falcon-wing doors will not be a problem, Musk said.
Production glitches for the Model X could also slow output of the Model S sedan, Musk said. Tesla may deliver 50,000 to 55,000 autos in 2015, down from an initial target of 55,000, he said.
Tesla delivered 21,577 units in the first half. Tesla expects to deliver about 12,000 vehicles, including a few Model Xs, in the third-quarter.
The Model X had previously been targeted to go on sale in 2013, then by the end of 2014. "The Model X is a particularly challenging car to build, maybe the hardest car to build in the world," Musk said. "But it is an amazing vehicle and I think it will blow people away."
While lowering the bar for this year and next, Musk remains confident that Tesla will produce about half a million cars in 2020. That is when, he said, investors should expect the company to become profitable. He pointed out that Tesla can now make 600 cars in three days – an output that would have taken 12 months just five years ago.
Asia, Europe production
Musk said that when Tesla is producing in high volumes it will think about setting up factories in Asia and Europe to localize production.
Tesla has recently hired a vice president of sales for Asia, where Model S orders "nearly doubled from last quarter, helped by the initial success of our revised China strategy," according to Musk and Chief Financial Officer Deepak Ahuja in a letter to shareholders with the Q2 figures.
The world’s largest auto market has the potential to become Tesla’s biggest customer base, but concerns about charging and early mistakes by the sales staff stymied the company’s entry. Now the market is slowing and China’s SUV-loving consumers will not get the Model X until the first half of next year.
Ahuja said as production of the SUV increases, the company will become free cash flow positive, probably near the end of this year and "certainly" for the first quarter of 2016, according to Ahuja.
Tesla has drawn down $50 million of a $750 million credit line, and left open the possibility of going to Wall Street for additional money. "There is not a need to raise equity capital," said Musk. "There may be some value in doing so as a risk-reduction measure."
The company has significant investment plans, including the development of the Model 3 and construction of a large battery factory east of Reno, Nevada, where production of battery cells, modules and packs is scheduled to begin early next year.
Tesla said it will reveal the design of its Model 3 -- a $35,000 “mass-market” car -- in the first quarter, with deliveries expected to start in late 2017.
Asked if Tesla saw opportunity in supplying cars for ride-sharing startups like Uber Technologies or was considering selling on-demand electric mobility services directly on its own platform, Mask said, "That's an insightful question" but declined to answer it.
Musk also reset expectations on 2016 production, saying that Tesla expects to produce an average 1,600 to 1,800 vehicles a week at its plant in Fremont, California, allowing for holidays and necessary downtime to retool. Previously Tesla had projected a weekly run rate of 2,000 cars and SUVs. For now, with a steep increase in output scheduled for the fourth quarter, even a one-week delay could reduce production by 800 vehicles, Tesla said.