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Tesla to Ramp Up Production of Its Mid-Market Model 3

Tesla, Inc. plans to mass produce a budget-friendly electric automobile for the first time.

With a $35,000 price tag and a range of 215 miles per charge, the company’s new Model 3 will cater to the average consumer. Tesla aims to produce 30 Model 3s by the end of July, and 20,000 a month (240,000 per year) beginning in December.

CEO Elon Musk wants “to get as many cars on the road as possible,” he says.

At least 380,000 people, 93% of whom would be first time Tesla customers, have paid $1,000 refundable deposits to reserve Model 3s. If production proceeds as Musk intends, Tesla will be able to fill those customers’ orders by 2018, at which point the Model 3 would become available on the open market. Tesla expects to build a total of 500,000 vehicles in 2018, and a million in 2020.

Tesla has yet to prove that it can produce vehicles in such volume. The company ramped up production over a year ago and built a combined 80,000 of its luxury Model X and Model S vehicles in 2016. However, sales of those models dropped 12% this quarter after a shortfall in the 100 kWh batteries that power the cars slowed production.

“We’ve really learned a lot of lessons…from the difficult Model X ramp,” Chief Technology Officer J.B. Straubel said.

Straubel and his team will have to put those lessons to good use. If the Model 3 is to meet the production goals Musk has outlined, it will have to be produced far more efficiently than any Tesla in history.

Unlike the Model X and the Model S, though, the Model 3 was designed with production efficiency in mind. The Model 3’s glass roof, for instance, is installed in the final stages of production. Prior to its installation, robots can enter the car from the top and perform a number of tasks typically done by humans.

Tesla’s automation software may be its primary competitive advantage in the manufacturing arena. The LA Times cites Alexandre Marian, director of AlixPartners consulting firm, as saying that “traditional automakers are struggling to speed up their software development cycles and feeling Tesla’s heat.”

In addition to revolutionary manufacturing technology, Tesla boasts unprecedented “over-the-air” software capable of updating electronic systems remotely, saving drivers a trip to the dealer.

Which is handy, because Tesla does not currently have any conventional dealerships. “Over-the-air” technology cannot perform mechanical maintenance and repair, so if the Model 3 floods the market as Musk hopes it will, the powers that be at Tesla will need to devise a system by which hundreds of thousands of vehicles can be cared for.

Meanwhile, other luxury auto companies are making inroads into the electric car market. Jaguar and Audi are slated to release electric cars next year. Porsche and BMW also have electric vehicles in the works.

If production proceeds on schedule, the Model 3 will be on the market before any real competition gets there. Moreover, because Tesla exclusively produces electric cars, it may be better suited than competitors to capitalize on increasing demand for environmentally friendly, gas-free vehicles.

Tesla’s stock has risen 63% this year, and the company’s market value sometimes climbs above that of General Motors. But its first effort at true mass production could make or break the company. The 2.5% hit the stock took Monday seems to indicate that investors lack confidence.

Despite his ambitious estimates regarding the production of the Model 3, Musk realizes the dangers Tesla faces. In a Twitter post on Monday, he thanked the 380,000 people who preordered Model 3s for “taking a risk on a new car company.”

Tesla could rapidly become an old car company if it does not meet its production goals. If it does meet those goals, it could become legendary for having revolutionized the auto industry.

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