Tesla CEO Elon Musk told shareholders on Wednesday afternoon that the company is on track to start initial production of the Model 3 in July, followed by larger volume manufacturing in September.
At some point in the fourth quarter of this year, Tesla says it will be able to make 5,000 Model 3 cars per week, followed by 10,000 Model 3 cars per week in 2018.
The timing of the Model 3 is a big deal to Tesla. It’s the company’s first "mainstream" car, with a price tag of $35,000. Tesla has invested heavily in the design process and making a bigger battery for the car.
Predicting exactly when Tesla will be able to move from low-volume production into much higher-volume production for its vehicles has been notoriously hard. Its Model X car was plagued by engineering and manufacturing issues in its early versions, slowing down production for months.
Tesla didn’t give more detailed guidance for the second half of the year. According to the company's shareholder letter, “even a couple [of] week[s] shift in timing could have a meaningful impact on total deliveries and installs.” Instead, Tesla says it will deliver 47,000 to 50,000 Model S and X cars in the first half of 2017.
During the earnings call, Musk and Tesla CTO JB Straubel said that manufacturing the Model 3 will be different undertaking from previous models. “We’ve learned a lot of lessons from the difficult Model X launch,” said Straubel, noting that the company has a simpler design for the Model 3 and plans to work on many Model 3 production lines from the start of the manufacturing process.
“While painful,” the Model X launch was “a helpful experience” when it comes to making Model 3, said Straubel.
Musk reiterated how hard it is to predict a ramp-up of production when it comes to making cars. The rate of production is “as fast as the slowest component in the supply chain of the vehicle,” said Musk, explaining there are several thousand unique items used in each car. It’s like “schedule whack-a-mole,” said Musk.
As previously reported, Tesla started making early prototypes of Model 3 cars this month, as part of the process of testing the design and manufacturing. The company reports that preliminary crash test results "have been positive,” for the Model 3 prototypes.
Right now, Tesla is in the process of installing new manufacturing equipment for the Model 3 in its Fremont, California factory, as well as in its massive battery factory outside of Reno, Nevada. The Gigafactory is already making the larger format batteries -- called the 2170s -- that will be used in the Model 3. Those batteries are also being used in Tesla’s grid and home batteries.
Tesla’s major focus this year is to ensure that the design and production of the Model 3 is such that it can eventually make a profit from a $35,000 car. The very first Model 3 cars that will come off the line -- intended for employees and investors -- will cost far more to make than the $35,000 price tag.
Musk said on the call that the margins of the early Model 3 cars will be “horrible,” and that no company on the planet would be able to get around that issue.
General Motors could reportedly lose $9,000 per every $36,000 electric Bolt sold. It will be a common problem for automakers as they launch lower-cost electric cars while battery costs remain comparatively high.
But Tesla appears to be doing everything in its power to get the Model 3 costs down as much as possible. Making its batteries at scale in conjunction with Panasonic at the Gigafactory is one way. Tesla recently said it will cut battery costs by 35 percent through the Gigafactory.
The Model 3 also won’t have many of the bells and whistles of the Model S and Model X, such as the self-presenting door handles and swooping gull-wing doors. The Model 3 will also have one screen, instead of the two screens and two computers in the higher-end cars.
Tesla is planning on buying enough parts to make 2,000 Model 3s in July and 4,000 Model 3s in August, said Musk on the call. But those are just parts orders, he said. The number of cars shipped could be different.
Musk also said that while Tesla has enough capital raised to get the Model 3 to market, it would be “close to the edge” in terms of how much money it’s spending. To reduce the company’s risk, it “probably makes sense to raise more capital,” said Musk.