A number of announcements and updates were provided by electric-car maker Tesla Motors (NASDAQ:TSLA) last week, including Oprah Winfrey's purchase of a Model S, an exact date for the first Model X deliveries later month, and details on Model X pricing. But perhaps the most notable of Tesla's updates was one on its timeline for its more affordable electric vehicle, Model 3.
Test driving my new Tesla with dealer Dan. Love it!! https://t.co/LHLroJ6Acl— Oprah Winfrey (@Oprah) September 1, 2015
Preorders and production
"Model 3, our smaller and lower cost sedan, will start production in about 2 years," Musk said on Twitter last week. "Fully operational Gigafactory needed."
This isn't news, of course. Tesla has for some time been referring to 2017 as the year it will bring its fully electric car with a $35,000 starting price to market. But it's good for investors to hear Tesla is sticking with its timeline, even with Model X deliveries about to begin. Anyone who has been following the company closely over the past three to four years knows that Tesla delayed the launch of its Model X SUV several times. Initially planning to launch the Model X in late 2013, and dragging the launch all the way out to September 2015, investors have wondered: Would the same fate of repeated delays spill over to Tesla's Model 3?
As of today, the company plans to stick with its timeline for Model 3. And this is good; delaying Model 3 could have much larger implications for the company than putting off its Model X did. Model 3 is Tesla's ticket to much higher volume sales. It's the company's final step in becoming an automaker even the world's largest car makers will have to reckon with.
Beyond informing the public that Tesla is sticking to its Model 3 production schedule, Musk also said on Twitter last week the company will unveil the Model 3 prototype and begin taking preorders for the vehicle in March. This will help Tesla begin to assess the demand for its vehicles at a lower price point.
If demand for Model 3 pans out anything like it has for Model X, Tesla probably won't have to worry about doing much to solicit interest in the Model 3 ahead of launch. Despite no advertising and very little information on Tesla's Model X, the company had over 20,000 deposit-backed reservations for the vehicle going into 2015. And keep in mind: Those putting money down for their reservations knew that the Model X would be more expensive than Tesla's pricey Model S.
At a much lower price point than Model X, the addressable market for Model 3 will be far larger. How many reservations for Model 3 can Tesla solicit? Assuming the company chooses to share this information with investors, we'll find out next year.
Getting to 500,000 vehicles per year
Looking out beyond 2020, Tesla hopes launching Model 3 can help carry the automaker to total sales of around 500,000 vehicles per year by 2020. To achieve this goal, Tesla will need its currently under-construction Gigafactory, or a factory intended to produce more lithium-ion battery under one roof by 2020 than was produced in the entire world in 2013, to launch on time. Tesla says the Nevada-based factory will begin first producing the first battery cells next year, but the factory won't be "fully operational" until Tesla launches its Model 3 in late 2017. And even once it's fully operational, Tesla sill plans to continue to ramp production at the factory until it reaches output for enough batteries to support 500,000 vehicles per year by 2020.
Are you considering buying a Model 3?
Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.