On Tuesday, electric-car maker Tesla Motors (NASDAQ:TSLA) confirmed it will be producing the drive unit for its Model 3 at its expanding Gigafactory in Nevada, adding to the company's plans for producing batteries at the massive factory. The investment represents an important step for Tesla ahead of its planned high-volume Model 3 production later this year.

Tesla Gigafactory construction progress as of Jan. 3. Image source: Tesla Motors.

Model 3 drive-unit production

After introducing Tesla's chief technology officer JB Straubel at Nevada's State of the State Address this week, Nevada Governor Brian Sandoval confirmed Tesla's Model 3 drive-unit production; it is expected to yield over $350 million of incremental investment in the state, and add 550 new skilled jobs to Nevada's economy.

Tesla job postings have already indicated the company was working on drive-unit production at the Gigafactory, but this announcement officially confirms the electric-car maker's commitment to drive-unit manufacturing -- specifically for its upcoming Model 3.

Drive-unit production expands the already mind-boggling scope of Tesla's Gigafactory, which Sandoval summarized in his address:

As you all know, Tesla's Gigafactory project has impressively contributed to our economic growth story. Currently, Tesla has over 1,000 full-time employees and 2,000 construction workers on site, and five million square feet of the Gigafactory is already built.

By the time Tesla's Gigafactory is finished, it will be the largest building on earth.

Tesla's Gigafactory was designed primarily to build battery cells and packs for its vehicles and its energy storage products as the company's vehicle sales increase. The company is building the factory in a unique phased approach, building it in sections and then immediately beginning manufacturing in finished areas. At the factory, Tesla has already started mass-producing the lithium-ion battery cells for its energy storage products; it will begin Model 3 cell production in the second quarter.

Tesla recently announced the company's Gigafactory had doubled in size between July of last year and January, expanding to a 1.9 million-square-foot footprint, with 4.9 million square feet on several levels of operational space.

When it's completed, the Gigafactory will be the largest building on Earth.

Big investments ahead of the Model 3

Tesla's expanding production at the Gigafactory is just one aspect of the company's production-capacity expansion ahead of its Model 3 launch.

The Model 3. Image source: Tesla Motors.

In Tesla's third-quarter shareholder letter, the company said its Model 3 was on track for "volume deliveries in the second half of 2017." Furthermore, Tesla said it had completed its production layouts for the vehicle and would soon begin installing new body-welding and final-assembly lines for the vehicle.

"As refinement of the Model 3 continues, we remain on plan for our timing, volume, vehicle capability, pricing, and margin targets," Tesla said.

To support increased production capacity for the Model 3, Tesla recently received approval in California to double the size of its car factory.

Building the foundation for higher production capacity is a critical task for Tesla, as the company is planning to increase annualized production from under 80,000 units in 2016 to 500,000 units in 2018 with the help of its lower-cost Model 3.