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Tesla Model 3
Tesla Motors’ Model 3 electric car is due to go into production in late 2017. (Credit: Tesla)

Tesla Motors says it will ramp up production of its best-selling Model 3 electric car much more quickly than planned, with a target of producing 500,000 automobiles starting in 2018 rather than 2020.

The plan, announced as part of Tesla’s first-quarter financial update, comes in the wake of phenomenal advance sales for the Model 3, Tesla’s lowest-priced model to date. More than 325,000 reservations were placed during the first week of sales last month. Tesla CEO Elon Musk said that pace was two to four times stronger than even he expected.

Model 3 production is due to begin in late 2017. During a conference call to discuss the quarterly earnings, Musk said that suppliers are being asked to deliver their parts by mid-2017 in order to meet Tesla’s timetable. “As a rough guess, I would say that we aim to produce 100 to 200,000 Model 3’s in the second half of next year,” he said. “That’s my expectation right now.”

He said he was so focused on the production issue that he’s taken to sleeping in Tesla’s factory in Fremont, Calif.

“My desk is at the end of the production line,” Musk said. “I have a sleeping bag in a conference room adjacent to the production line which I use quite frequently. The whole team is super-focused on achieving rates and quality at the target cost.”

The Model 3 has a base price of $35,000, but Tesla expects that options would bring the average per-car price to more than $40,000. That translates to $14 billion in projected sales.

Tesla said speeding up production to meet the demand will come at a cost: somewhere around $750 million this year.

“Given our plans to advance our 500,000 total unit build plan, essentially doubling the prior growth plan, we are re-evaluating our level of capital expenditures, but expect it will be about 50 percent higher than our previous guidance of $1.5 billion for 2016,” the company said in its update. “Naturally, this will impact our ability to be net cash flow positive for the year, but given the demand for Model 3, investing to meet that demand is the best long-term decision for Tesla.”

Tesla posted a first-quarter loss of 57 cents per share, on $1.6 billion in revenue. That’s higher than last year’s per-share loss, but CNBC said it was slightly below what analysts expected. The company’s share prices seesawed during the day – falling 4.2 percent by the close, then rising again in after-hours trading once Tesla issued its update.

Tesla’s letter to shareholders and customers mapped out an ambitious production schedule, and not just for the Model 3. It said that its Gigafactory in Nevada would start manufacturing batteries by the end of the year, and that 80,000 to 90,000 Model S and Model X cars would be delivered this year.

That rate would be a significant increase over last year’s pace of 50,000 deliveries. Tesla set a quarterly record by producing 15,510 vehicles during the first three months of the year, but the pace will have to increase further to hit this year’s target.

“We are making significant progress in increasing production and plan to continue increasing total vehicle production to support over 50,000 deliveries in the second half of this year,” Tesla said.

Tesla’s stock has been closely watched due to concerns over its cash flow, some recent recalls and the potential for production delays. Personnel shifts have added to the drama: This week, Tesla confirmed that two top manufacturing executives would be leaving the company.

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