Partially Upgraded Tesla China Model 3 Production Will Start in March

Bloomberg News reports that Tesla China will be halting some production at Gigafactory Shanghai until the end of February. The facility has two phases that are used for vehicle manufacturing, and with the upgrades in motion, some workers in the first phase will reportedly not be allowed on production lines as soon as Sunday.

According to Bloomberg sources, this should ease the company’s plans to modernize the factory in order to launch an updated version of its Model 3 later. The factory should be launched at full capacity, immediately after completion, which is planned for the end of February.

Upgrades to Giga Shanghai’s production lines had been rolled out in stages over the past two months. This allowed the facility to operate and produce vehicles as usual even with improvements being implemented. With the upcoming shutdown, however, one could infer that the upgrades might be nearly complete.

It remains to be seen if the upgrades to Giga Shanghai would result in the facility producing Tesla’s “Project Highland” Model 3 sedans. Earlier reports said the Model 3’s “Project Highland” updates should be put into production around Q3 2023. The current updates to the Model 3 from Giga Shanghai after these coming upgrades may not be the complete “Project Highland” rollout.

Prototypes of the upgraded Tesla Model 3s have been seen but they have covered the front and rear sections. This is widely believed to be front and rear castings with additional design improvements. Front and rear castings should speed up production and lower costs. There are estimates that Tesla could remove $5000 in costs from the Model 3.

A Tesla Model 3 manufacturing process that has been revamped for large castings will make the Model Y and Model 3 processes very similar. Berlin and Austin could begin making the Model 3 without a significantly different process from Y.

The China Tesla Model 3 price was reduced by 13.5% to about 229,900 yuan ($33,515). A $5000 cost reduction would enable Tesla China to profitably make and sell a base Model 3 for about $28,000.

New Europe and US Model 3 Highland prices could drop into the $30,000 to 35,000 price range.

For the full year 2022, 124,456 Model 3 units were sold in China, down 17.52 percent from 150,890 units in 2021. Tesla delivered 315,314 Model Y in China in 2022, up 85.64 percent from 169,853 units in 2021. A revamped and lower cost Model 3 could be closer to the production levels and demand for the Model Y.

Lowering the prices greatly expands the addressable car market. A $30,000 car could compete for 50% of the US car market. The US car market is only 30% of the overall market as pickup trucks and large SUVs are the majority of the market. 15% of 15 million vehicles is 2.2 million cars. A $28,000 car in China could make Tesla compete for 4-6 million car markets. Getting 10-20% of those market would be an extra 400k to 12 million cars.