Tesla Is Reportedly Making Further Progress On Model 3 Production

Tesla's (NASDAQ:TSLA) Model 3 production ramp has been the primary focus for the electric-car maker all year. But after enduring some setbacks and falling behind production targets earlier this year, the company is reportedly finishing 2018 on a much brighter note than it started.

This article originally appeared in the Motley Fool.

Tesla has achieved a production rate for Model 3 of 1,000 units a day, according to a report from Tesla-focused blog Electrek that cites an email from Tesla CEO Elon Musk to employees. This new production rate, if sustained for seven days, would mark a meaningful uptick in the company's production rate of 5,300 Model 3s per week achieved at the end of Q3.

1,000 units per day

Importantly, Tesla is focused on sustaining this higher level of production.

"If you are able to help in any way with getting Model 3 production to a steady 1000 per day at excellent quality, everyone at the company should please consider this their top priority," Musk said in the email.

In the past, Tesla has struggled to sustain new milestone production levels for the Model 3. For instance, even though the company finished its second quarter producing 5,000 Model 3s per week, it averaged a lesser rate of 4,300 Model 3s per week in Q3 when excluding planned shutdowns for factory upgrades. It's no surprise, therefore, that Tesla is intently focused on sustaining this new production level this time around.

Bringing the Model 3's cost down

By sustaining a higher level of production, Tesla will be able to achieve greater economies of scale and make progress toward finally bringing to market its promised $35,000 Model 3 with a smaller battery, Musk added in the email:

It's important to bear in mind that the cost of the car is made up of about 10,000 unique parts and processes. Depending on how you count it, the current cost of a standard range Model 3 would be around $38,000, so each part or process step only costs around $3.80. That means finding cost efficiencies is a game of pennies, even though it might not seem so.

Initially, the Model 3 had a starting price of $49,000. But the company recently released a cheaper variant with a midrange battery capable of 260 miles of driving on a full charge -- compared with 310 miles for Tesla's long-range version -- with a starting price of $46,000.

While a $46,000 version of Model 3 is still $11,000 higher than the promised base model Tesla has said it would bring to market, this midrange version allowed the company to lower the Model 3's starting price earlier than expected.

"Better-than-expected Model 3 cost reduction is allowing us to bring more affordable options to the market sooner," management said in the company's third-quarter shareholder letter.

Tesla is aiming to bring the $35,000 version of the Model 3 to market by the end of May, Musk said in the company's third-quarter earnings call. But he said Tesla wants the vehicle's cost of goods sold to be around $30,000 or slightly lower to produce the vehicle at volume.

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