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Tesla Model 3: Elon Musk sees the vehicle generating ~$20 billion in revenue with 25% gross margin (TSLA)


At a special media event for the opening of the Tesla Gigafactory today, CEO Elon Musk made a few comments about the upcoming Model 3. He confirmed the pencil down on the design as reported two weeks ago, and he also elaborated on its financial sustainability as a vehicle program.

With already over 373,000 reservations (Tesla hasn’t updated this number in a while), the vehicle already proves to be in demand, but industry analysts want to know if Tesla can make money selling them in order to finance its other ambitious goals, like a pickup truck and ‘Tesla Semi‘.

Musk said that once at full production, he expects the Model 3 to generate around $20 billion in revenue per year for Tesla with $5 billion in gross profit (or 25% gross margin).

It adds up to roughly 500,000 cars per year at a $40,000 price tag.

The Model 3 is expected to start at $35,000 for the base version, but with options and performance versions to be available, the average sale price will be higher.

The 25% gross margin is also an ambitious goal considering Tesla is having difficulty maintaining a similar margin on its Tesla Model S, a vehicle starting at $66,000:Tesla gross margin

But Tesla’s CEO also said that the Model 3 has been designed for being easy to manufacture and battery cost should be much lower once the vehicle hits its full annual production closer to the end of the decade.

During the event, Musk reiterated that he expects battery costs to fall below $100/kWh by 2020. They are currently below $190/kWh. The cost reduction will not only come from the battery cells manufactured at the Gigafactory, but also through lowering the cost of the overall battery pack for the third generation platform.

Finally, Musk reiterated that he is confident the Model 3 will enter production in summer 2017 for deliveries starting shortly after.

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