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UPDATE 4-Tesla's Musk says Model 3 on track, shares rise

(Adds background on auto industry sales, updates shares)

July 3 (Reuters) - Tesla Inc's shares rose 1.5 percent on Monday after Chief Executive Elon Musk said late on Sunday that the electric carmaker was set to start production of its new Model 3 sedan this month and was on track to produce 20,000 per month by December, in line with its previous targets.

Tesla's previous launches for its Model S sedan and Model X sports utility vehicle were hit by production delays and initial quality issues. That track record meant some analysts were skeptical about the model's planned July launch.

In a series of posts on Twitter, Musk said the new vehicle had passed all regulatory requirements for production two weeks ahead of schedule.

"Production grows exponentially, so Aug should be 100 cars and Sept above 1,500," Musk said. "Looks like we can reach 20,000 Model 3 cars per month in Dec."

That is in line with targets Tesla previously set, of more than 5,000 Model 3s per week by the end of this year and 10,000 vehicles per week "at some point in 2018".

Musk said he expected SN1 - the first car off the assembly line for sale - to be completed on Friday.

Tesla has taken deposits on more than 300,000 Model 3s, a $35,000 vehicle aimed at the mass market. The popularity of the vehicle is in marked contrast to the fortunes of major U.S. automakers, which are in the midst of a downturn. General Motors Co and Ford Motor Co both reported lower sales for June on Monday.

Reuters reported in February that Tesla shut down production at its California assembly plant for a week to prepare for production of the Model 3 sedan, in order to meet its target of starting production in July.

Tesla's shares were up 1.5 percent at $366.97 in morning trade. (Reporting by Subrat Patnaik in Bengaluru and Peter Henderson in San Fransisco; Editing by Amrutha Gayathri and Bill Rigby)