JPMORGAN: Tesla could have to raise the price of the Model 3 (TSLA)

tesla factory

Tesla is going through "production hell" right now as it tries to get more Model 3s out the door.
If it can't solve its production problems, the company could look to other ways to maintain margins, like raising the prices.
JPMorgan lowered its price target and earnings forecasts based on the production bottlenecks.

Tesla is in production hell right now.

The company only produced 220 Model 3s in the third-quarter when it hoped for more than 1,500. In a note to clients on Friday, JPMorgan suggested that if Tesla's production troubles continued, it might be forced on the defensive.

"We worry that if the vehicle proves structurally more expensive to manufacture, that in order to preserve the targeted gross margin, Tesla may need to increase the price of the vehicle to consumers, with negative implications for demand," JPMorgan said.

Right now, Tesla has an estimated 450,000 preorders for its Model 3. The company has said it is facing production bottlenecks that it hopes to solve soon, but JPMorgan isn't optimistic.

The bank said that investors are underestimating the risk of Tesla not being able to solve its production problems. If the Model 3 is simply harder to manufacture than Tesla predicted, it could mean lower delivery numbers and potentially higher prices for the new car. Both of these problems would put dents in the "mass-market" branding of the Model 3.

JPMorgan lowered its production forecasts for the Model 3 to 15,000 in the fourth quarter, half of its previous forecast.

The bank also lowered its earnings expectations for Tesla. JPMorgan now is expecting a loss of $7.34 per share for 2017, down 13.9% from its previous prediction of a loss of $6.44 per share. It lowered its 2018 and 2019 earnings forecasts as well, predicting that the company won't post a profit until 2020.

Tesla is down 1.48% on Friday following JPMorgan's report but is still up 61.4% this year.