(Rewrites with share drop, background on production)
July 3 (Reuters) - Tesla Inc's shares fell 2.5 percent on Monday after Chief Executive Elon Musk said late on Sunday that the carmaker was set to start production of its new electric Model 3 sedan this week and would produce 20,000 per month by December, roughly in line with its previous targets.
Some analysts have been skeptical about the Model 3's planned July launch after production delays and quality issues marred the launches of its Model S sedan and Model X sports utility vehicle.
Tesla's shares are up more than 60 percent this year, partly on expectations of a strong launch for its Model 3, the first car it has aimed at the mass market. Tesla has a market value of $58 billion, greater than General Motors Co and Ford Motor Co.
In a series of posts on Twitter, Musk said the Model 3 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, starting at $35,000 a vehicle. Its popularity stands out as major U.S. automakers face a downturn. GM and Ford both reported lower sales for June on Monday.
The Model 3 marks a turning point for Tesla as it transitions from a niche luxury car manufacturer to a mass producer. The 500,000 vehicles the company plans to make next year is nearly six times its 2016 production.
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 down 2.5 percent to $352.62 in afternoon trade. (Reporting by Subrat Patnaik in Bengaluru and Peter Henderson in San Fransisco; Editing by Amrutha Gayathri and Bill Rigby)