Tesla has reworked the ex-GM/Toyota NUMMI plant in Freemont, California into a high-tech electric car factory, but it may soon outgrow the place. The company—which has built about 30,000 Model S sedans so far—has previously hinted at a larger plant that would coincide with plans to ramp up production.

Tesla Motors [NSDQ:TSLA] CEO Elon Musk elaborated on these plans in a recent shareholder letter. He described a "Gigafactory" that would build battery packs for a future mass-market electric car. Tesla currently buys individual battery cells from Panasonic, but under the new scheme it would start with raw materials and finish with complete packs.

"This will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation," Musk said in the letter.

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The Gigafactory would likely produce batteries for Tesla's "Gen 3" models, which are expected to be significantly less-expensive than the current Model S and will sell in larger volumes. Set to appear around 2016, Musk previously quoted a 200-mile driving range for the cars, despite the fact that they will use smaller battery packs.

One of those cars will be a small sedan, likely called Model E. Musk previously said the car would compete against the BMW 3-Series in the lucrative small luxury segment, and would have a starting price of less than $40,000. A crossover based on the same platform is also possible, as is a a new sports car to succeed Tesla's first production model, the Roadster. However, both won't see showrooms for some time, if they get built at at all.

In the interim, Tesla will launch the Model X crossover later this year, and continue to update the Model S, possibly adding an all-wheel-drive option at some future date.


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