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Tesla, Inc. Plans All-Wheel Drive Model 3 for July

By Daniel Sparks – Apr 9, 2018 at 1:45PM

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Plans for the upcoming Model 3 version suggest the important vehicle's profit margin is improving.

On the heels of Tesla's (TSLA -1.10%) surging Model 3 production volume in its first quarter, the electric car company is finally readying the dual-motor, all-wheel drive version of the vehicle. For now, Tesla has refrained from offering many options for Model 3 customers to choose from. By limiting Model 3 options, Tesla aimed to streamline the vehicle's production ramp-up and help keep costs as low as possible. But now Tesla CEO Elon Musk is saying the automaker plans to launch its all-wheel drive Model 3 in July.

A sign of progress

When asked on Twitter over the weekend when the dual motor version of the Model 3 was coming, Musk responded, "We need to achieve 5k/week with Model 3 before adding complexity that would inhibit production ramp ... So probably July." In addition, Musk said the company's popular white-seat configuration would be available around the same time.

An ariel view of the front end of a red Model 3.

Model 3. Image source: Tesla.

Musk's confirmation that Tesla plans to add an all-wheel drive Model 3 option to its production line after achieving its target weekly production rate of 5,000 units follows the company's April 3 update on its production ramp, in which Tesla confirmed it had achieved a Model 3 production rate of over 2,000 units per week. Tesla had also said in its update on deliveries and production that it expected to achieve a production rate of 5,000 vehicles per week in "about three months ... ."

With hundreds of thousands of deposit-backed Model 3 reservations to tap into, and significant negative free cash flow of $3.5 billion in 2017, every day counts in the automaker's production ramp. So, it's good to see that Tesla believes it's still on track for its ambitious production target of 5,000 Model 3's per week by this summer.

Hitting 5,000 Model 3 units per week will be an important milestone for Tesla. It not only gives the automaker enough scale to begin adding more Model 3 options for customers to choose from, but management also says the economies of scale associated with this high-volume production will result in a robust gross profit margin and meaningful operating cash flow. In other words, if Tesla can achieve this target by this summer, the company won't need to raise any capital this year.

Getting to 10,000 units per week

Tesla explained in its fourth-quarter shareholder letter its thinking of getting to 10,000 units per week, saying, "[I]n order to incorporate our learnings and be capital efficient, we intend to start adding enough capacity to get to a 10,000 unit weekly rate for Model 3 once we have first hit the 5,000 per week milestone."

Tesla vehicle production at Tesla's factory in Fremont, California.

Tesla production. Image source: author.

Further, improved scale from higher Model 3 production volume is what will enable the company to finally begin selling its $35,000 version of its Model 3 with a smaller battery, which will have narrower profit margins than the long-range version of the vehicle. Currently, Tesla is only selling the long-range version of Model 3, with 310 miles of range on a single charge. Since the long-range battery adds $9,000 to the Model 3's base pricing, the introduction of the standard-battery Model 3, with 220 miles of range, will open Tesla's Model 3 to a larger addressable market, helping demand.

With a dual-motor Model 3 on the horizon, Tesla's high-volume production plans are looking like they are starting to come together.

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

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