Tesla's Gigafactories could make $35K Model 3 feasible by 2020

Though upstart EV automaker Tesla is slated to unveil its $132,000 crossover SUV the Model X tomorrow, it's the brand's future mass-market EV, dubbed the Model 3, that is making news.

According to a report from Street Insider, an analyst from investment firm Jefferies predicts that Tesla's Gigafactories could make a $35,000 Model 3 financially feasible by 2020. The announced Gigafactories, planned for Texas, New Mexico, Arizona and Nevada would produce lithium-ion batteries — powered by renewable energy.

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When the Gigafactories come online, they — along with new battery chemistry — could bring down battery pack costs by as much as 50% by 2020. Right now, the batteries cost around $250 per kilo Watt hour (kWh), which represents around 20% of the average cost of producing a Model S. Bringing that number down to as low as $125/kWh, the batteries would represent 12-13% of Model 3 production costs. This would make a mass-market Model 3 a financially feasible vehicle. It would also increase the profits on the Model S and Model X.

Remember, for as much press as Tesla has garnered in the last few years, the company has yet to make a profit. So halving battery costs could be a game-changer for both the EV industry as well as Tesla's long-term viability.

At the moment, Tesla is in a virtual arms race with Chevrolet to produce the first EV with a range of more than 200 miles per charge at a price-point accessible to most consumers, roughly $30,000. While Chevy scrambles to produce the promised Bolt, Tesla is hard at work on its Model 3. It's unclear where General Motors will source its cheap, long-range battery packs. If Tesla can get its Gigafactories online in a timely manner, however, it might just have the issue sorted.