Why Tesla Gigafactory Is So Important for Model 3 Success

Tesla Gigafactory’s production capacity

Tesla (TSLA) Gigafactory is expected to have annual battery production capacity of 35 gigawatt-hours (or GWh). It’s being built in cooperation with Panasonic and other strategic partners. In this part of the series, we’ll see why Gigafactory is so important for the success of Model 3.

Why Tesla Gigafactory Is So Important for Model 3 Success

Model 3 demand

Before launching Model 3, Tesla already had a series of luxury electric vehicles in its product lineup. There’s still a high demand for Model S, one of the most successful electric vehicles in the market.

While these luxury car models remain the bread and butter for Tesla’s business, Model 3 is targeted to achieve the ultimate objective of the company—to produce a mass-market electric vehicle in high volume and make sustainable transportation mainstream.

Model 3 is likely to have a price tag of $35,000 without government incentives. However, this price isn’t the only thing that makes this car model so appealing. The car is likely to come loaded with features such as autopilot, a minimum 215-mile range per charge, and 0–60 MPH (miles per hour) acceleration in six seconds.

Note that Nissan’s Leaf has already made itself known in the EV (electric vehicle) segment. In addition, legacy automakers (XLY) General Motors (GM), Ford (F), and Honda (HMC) have already announced their aggressive plans to invest in EVs.

Why is Model 3 dependent on Gigafactory?

Large-volume production of a product can divide the fixed costs and significantly reduce the cost per unit. That’s why Gigafactory is so important for Tesla. It should bring down the cost of Model 3 battery packs with economies of scale. Cost reduction is the key for Tesla to make its Model 3 affordable for a large number of people and at the same time turn a profit. The success of Model 3 will be highly dependent on Gigafactory operations and success.

In the next part of this series, we’ll see what Wall Street analysts are estimating for Tesla stock.