Tesla begins production of Model 3

Published on: 03 Jul, 2017

Tesla Motor Inc. (NASDAQ: TSLA) passed all regulatory requirements for the production of its first mass-market car, the Model 3, according to CEO Elon Musk on Sunday night.

The company’s shares were up 3 percent in premarket trading on Monday after it was announced that the Model 3 sedan would be delivered to the first 30 customers as early as July 28, two weeks ahead of schedule.

Musk expects to produce 100 Model 3’s by the end of August and 1,500 or more by September. The Palo Alto, California-based company plans to ramp up the vehicle’s production to reach a target 500,000 cars per year in 2018. By comparison, Tesla only made about 85,000 cars in 2016.

Up to this point, Tesla has produced only luxury cars at a relatively small scale, typically selling former models for $90,000 or more. The Model 3, priced at $35,000, is a smaller, more affordable version of the Model S with fewer features. Musk envisions the new vehicle reaching a much wider range of customers as the lower price aims to turn the cash-losing company into a profitable one.

Musk announced to shareholders in June that production was set to begin in July at Tesla’s assembly plant in Fremont, California. In the shareholders meeting, he noted that the company may look to add more assembly plants in preparation for the Model 3, including a $5 billion factory in Nevada used to produce batteries.

Earlier this year, Tesla raised $1 billion through offerings of stock and debt, with Chinese internet giant, Tencent Holdings, acquiring a 5 percent stake. The company needs the extra capital as it continues to post losses in most quarters. In the first quarter this year, Tesla lost $397 million, compared with a loss of $282 million in the same period a year earlier. The company's revenue more than doubled, however, to $2.7 billion.

Investor optimism about the Model 3 has bolstered Tesla’s shares about 67 percent this year. On Friday, shares closed at $361.61.

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Austin Chiu

Email: Austin@financialinsiders.com

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