Tesla, Inc.'s Model 3 Battery Sizes -- What Investors Need to Know

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Since electric-car maker Tesla (NASDAQ: TSLA) fully unveiled its Model 3 and delivered the first units to customers last month, there's been speculation about what battery size the vehicle sports. In an interesting marketing move, Tesla has opted to obfuscate battery size options for the vehicle, instead referring to the two available versions as "standard" and "long range."

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But this marketing tactic has left investors wondering about battery specifications. After all, Tesla's battery is the highest-cost component in its vehicles. So, knowing the battery size would give investors some insight into how Tesla plans to achieve a meaningful gross profit margin on the vehicle.

Model 3 battery sizes

But the secret is out. Tesla's standard Model 3 with 220 miles of range includes a 50 kilowatt-hour battery. Meanwhile, the long-range Model 3 with 310 miles of range features a 75 kWh battery.

Tesla CEO Elon Musk shared the battery specifications during a conference call Monday about Tesla's $1.5 billion debt offering.

Why it matters

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Noting in its second-quarter shareholder letter that Tesla was aiming for a 25% gross profit margin for Model 3 next year, a low cost per Model 3 unit is clearly a priority to Tesla management. To achieve the vehicle's $35,000 price point while simultaneously aiming for a heady gross profit margin, the electric-car maker has designed the Model 3 from the ground up to be cost effective and to take advantage of economies of scale. This includes simplifying the car's design, streamlining production by reducing the number of options available for customers to choose from, and even building a battery factory that will produce batteries at higher volume and greater efficiencies than ever before.

But Tesla's ability to achieve 220 miles of range with just a 50 kilowatt-hour battery is apparently yet another way the automaker was able to reduce per-unit costs. For perspective, Tesla's entry-level Model S requires a 50% larger battery to achieve just 13% more range than the base Model 3. Tesla's 75 kWh rear-wheel drive Model S gets 259 miles of range. For further comparison to Tesla's Model S, Tesla has previously offered a 60 kWh version of the sedan, but it only sported 208 miles of driving range on a single charge. Of course, the Model S is about a 20% larger vehicle than the Model 3, so it's understandable that the Model S requires larger batteries to get comparable range. But the Model 3's range-to-battery size efficiency is impressive.

For yet another comparison, General Motors' Chevrolet Bolt, which is more compact than Tesla's Model 3, can drive 238 miles on a single charge. But the Bolt needs about 20% more battery capacity (a 60 kWh battery), than Tesla's Model 3 to achieve this.

The standard Model 3's much lower battery size compared to the Model S could help significantly reduce the vehicle's unit cost. Further, Tesla is making customers pay a hefty price when they upgrade to the long-range Model 3, charging an additional $9,000; this should help Tesla maintain similar gross profit margins for the Model 3 version with a larger battery.

As the most costly component in its vehicles, Tesla has focused much of its efforts on reducing battery costs by building its Gigafactory, where Tesla hopes unprecedented battery production scale can drive battery costs 35% lower. Tesla is already building Model 3 battery packs at the factory, and Musk reportedly said during this week's conference call that the factory is already building more batteries than any other factory in the world.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.