Tesla is promising it will deliver 500,000 electric cars by 2018. For comparison, 1,507,229 cars were sold in 2014 in the U.S. and 1,641,913 were sold in 2015.
With its Model 3 mass-market sedan, Tesla hopes to deliver more than triple the number of cars it has ever made without sacrificing profits, quality or a relatively cheap price point. It will have to do all this while larger rivals begin releasing competing electric models.
So what is Tesla’s strategy?
Well, Elon Musk recently told a roomful of reporters that production of the $35,000 electric Model 3 is on schedule to begin in the summer of 2017.
Most important to meeting the deadline, Tesla’s Gigafactory is on track to pump out batteries after it officially opened. Operating at a previously unheard of scale, Tesla sees prices falling below $100 per kilowatt hour by 2020, or less than 10% of the 2010 average price of $1,200. Battery cost makes up a third an electric car’s price so such a major and today’s battery costs are far below what most estimated they would look like back in 2012 as illustrated below.
Compared to Bloomberg New Energy Finance estimates from February, electric cars will soon be able to compete on price with traditional vehicles.
Battery costs are falling for three reasons: cheaper materials, a shorter supply chain, and factory automation. Raw materials are cheaper bought at scale, supply chain costs are keeping all components in the U.S. to reduce shipping and packaging costs, and most major manufacturing processes are being automated.
Tesla says the factory will be producing 35 gigawatt hours of batteries by 2018, which is equivalent to the entire world’s production in 2014.
Though in-house battery production is pivotal to Tesla’s goal of making cheaper electric vehicles, it also leaves Tesla in a precarious position if the Model 3 is delayed or sells poorly and they have no way to pay for the massive investment. Tesla will also have to move quickly to capitalize on its head-start as it hopes to do, but A Wall Street Journal analysis found that Tesla has failed to hit more than 20 production or other projections since 2011.
Elon Musk put a July 1, 2017 deadline for the start of Model 3 mass production. It remains to be seen if he can pull it off.