Tesla announces new Model 3 production plans, guidance of 500,000 cars/yr by 2018, instead of 2020

Tesla’s stock price (TSLA) surged by 7% in after-hour trading after the release of its first quarter 2016 financial results. The reason for the surge wasn’t as much about its earnings, but because of its new Build Plan.

The automaker announced that it is advancing its 500,000 units per year guidance by two years to 2018. Tesla says that the new production plan is in reaction to the over 400,000 Model 3 reservations it received since the unveiling last month.

While it’s in reaction to the demand for the Model 3, the 500,000 units per year will also account for the production of Model S and X, but the Model 3 will represent the majority of its production capacity.

Tesla wrote in its shareholders letter:

We are on track to achieve volume Model 3 production and deliveries in late 2017. Of course, in order to meet that timeframe, we will be holding both ourselves and our suppliers accountable to be ready for volume production in advance of that timing.

Additionally, given the demand for Model 3, we have decided to advance our 500,000 total unit build plan (combined for Model S, Model X, and Model 3) to 2018, two years earlier than previously planned. Increasing production five fold over the next two years will be challenging and will likely require some additional capital, but this is our goal and we will be working hard to achieve it.

We remain on plan to make the first cells at the Gigafactory in Q4 2016, and we are adjusting our plans there to accommodate our revised build plan.

Our objective with Model 3 is to create the world’s best car with a base price of $35,000, before any incentives, with a range of at least 215 miles on a single charge, and with strong gross margins. We plan to incorporate our best technology into Model 3, yet keep it relatively simple to build at high volume and with high quality.

The automaker also added that it believes the unveiling of Model 3, which is stimulating demand for all of its vehicles. It reported that Model S net orders rose 45% during the quarter compared to a year ago.

Musk revealed more details about the production plan during the following conference call.

Here’s Tesla’s Shareholders Letter in full: Q1_2016_Tesla_Shareholder_Letter