Tesla Motors [NSDQ:TSLA] has said multiple times it plans to produce 500,000 electric cars per year by 2020, but now the company believes it may hit that goal a little earlier.

In its latest shareholder letter, Tesla said it plans to move the 500,000-unit goal up to 2018. And in a conference call with shareholders, CEO Elon Musk said he now expects Tesla to reach as much as 1 million cars per year by 2020.

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The company also reaffirmed a prediction that it will build 80,000 to 90,000 Model S and Model X models this year.

Tesla Model 3

Tesla Model 3

Tesla is likely expecting to quickly ramp up production of the less-expensive Model 3 in order to achieve 500,000 units per year by 2018. It already has around 400,000 reservations for the car, but won't put it into production until some time in 2017. Musk, rather boldly, expects Tesla to build 100,000 to 200,000 Model 3 sedans in the second half of that year.

The start of Model 3 production is contingent on the completion of Tesla's massive "Gigafactory" in Nevada, which will make lithium-ion battery cells for the car. Tesla needs the economy of scale offered by such a large factory to achieve the Model 3's claimed 215-mile range at a base price of $35,000. Tesla is also leasing additional warehouse space near its Fremont, California assembly plant, and upgrading the plant itself. The Tesla factory actually built 500,000 cars per year back when it was jointly operated by General Motors Company [NYSE:GM] and Toyota.

Tesla has little time to jump from the roughly 50,000 units it delivered in 2015 to 500,000 in 2018. The Model 3 is crucial to that but Tesla has delayed the launch of every new model so far. A delay in the start of Model 3 production could prevent Tesla from meeting its goal, not to mention frustrate the 400,000 people who have already made reservations.


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