Tesla Model 3 annual demand could surpass 700,000 units, says Elon Musk

Elon Musk previously guided demand for Model 3, Tesla’s new mass market electric vehicle, to reach roughly 500,000 vehicles per year.

Following the launch of the new electric car last month, Musk is now more confident of the demand for the vehicle and he sees it potentially reaching an annual rate of “more than 700,000 units.”

The CEO first hinted at the demand potentially surpassing his previous guidance during a press briefing when he insisted that reservation numbers don’t reflect demand because Tesla is not trying to sell the vehicle.

But now he said it outright earlier today during a conference call with investors about Tesla’s new senior note issuance.

Goldman Sachs hosted a meeting with Tesla CFO Deepak Ahuja for bondholders to discuss the opportunity that the new bonds offer and Musk joined in on the phone to answer a few questions.

Two sources at the event told Electrek that Musk updated his projection to “700,000 units per year” and he added that he could see it eventually go even higher.

In comparison, BMW 3 Series and Audi A4, two vehicles against which Tesla hopes to compete with the Model 3 in the mid-luxury sedan segment, have annual production rates of about 400,000 and 330,000 cars per year respectively.

The new projection would likely require more factories. Tesla’s Fremont factory could be limited to about 500,000 units per year – though Musk suggested that they could potentially increase that by moving Model S and Model X drive unit production to Gigafactory 1 in Nevada, where Tesla is already producing Model 3 drive units.

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Furthermore, the CEO also updated his expectations for the average sale price of the vehicle.

Musk previously said that he expects the Model 3, which starts at $35,000, to have an average sale price of $42,000.

Today, he said that the average sale price should be closer to $45,000 once the vehicle is at full production. At first, Musk said the average price should be closer to $50,000 as Tesla limits the options to the long range battery pack and premium interior, which results in all Model 3 vehicles being delivered today costing at least $49,000.

The new average prices are Musk’s best estimations right now and he said that Tesla will have a much better idea once they open up the configurator to reservation holders with all the options for cheaper versions of the Model 3.

But in the meantime, the new figures have a great impact on the overall estimated financial value of the Model 3 program, which was previously estimated as having a potential of about $20 billion in revenue per year.

Now Musk’s new projections put the overall annual revenue of the Model 3 program to over $30 billion per year.

While the CEO appears confident on demand, Tesla now has to focus on ramping up production of the Model 3. Musk is fairly certain that Tesla can achieve a production rate of 10,000 units per week by the end of next year, but he warned investors that they will be in “production hell” until then.

That $1.5 billion of debt that they are trying to raise is aimed at helping them go through this production hell.

As we reported earlier today, Tesla also brought a Model 3 to the meeting in order for investors to get to know the vehicle.