PALO ALTO — Tesla Motors revealed Thursday that it is drastically ramping up electric car production with a new assembly line at its Fremont factory and broke ground on a potential site for its much anticipated battery “gigafactory” just across the California border in Reno.

The Palo-Alto based company reported Thursday that it delivered 7,579 all-electric Model S sedans in the second quarter and increased its expectations for 2014 deliveries to more than 35,000 cars. By the end of next year, Tesla expects its delivery rate to exceed 100,000 units per year. That number will include both the Model S and its next car, the Model X, a crossover SUV scheduled to come out in 2015.

Tesla shares were up slightly in after-hours trading on a tough day for the market.

In a letter to shareholders Thursday, the company announced it has broken ground in Reno, Nevada, on a site that could “potentially be” the location for the massive battery factory it plans to build in partnership with Panasonic. However, Tesla said it is still evaluating several locations in four other states, leaving hope that California is still a contender, along with Arizona, New Mexico and Texas.

Tesla’s audacious plans for the $5 billion gigafactory, which will occupy roughly 10 million square feet and eventually employ 6,500 workers, has set off a fierce competition among states hoping to land what has become one of the nation’s most intriguing economic development prizes due to its promise of highly sought-after manufacturing jobs.

“Tesla was born in California and currently employs over 6,000 people, making them the largest automotive company in the state,” said Brook Taylor, a spokesman for Gov. Jerry Brown’s Office of Business and Economic Development. “The administration is working every day to help companies expand in California, and Tesla is certainly one of those companies.”

Speculation about Reno had been rampant after an electric-vehicle advocate in Nevada posted photographs of the construction site, which was known by the code name “Project Tiger.” But the gigafactory is a huge strategic move for Tesla and Panasonic, and Tesla is keeping its options open while trying to get the best tax and incentive package from the competing states.

“We want to make sure the gigafactory deal is compelling for all parties,” CEO Elon Musk said during a conference call with analysts. “In Nevada, the ball is in the court of the governor and the state legislature.”

Jennifer Cooper, a spokeswoman for Nevada Gov. Brian Sandoval’s Office of Economic Development, said Thursday that discussions with Tesla are confidential and ongoing.

“The final site for the first gigafactory will be determined in the next few months, once we have full visibility and agreement on the relevant incentives and processes for enabling the gigafactory to be fully operational to meet the timing for Model 3,” Tesla said in a shareholders letter published Thursday.

Tesla also announced Thursday that it has signed an agreement with Panasonic to partner on the gigafactory. Each Model S is powered by more than 7,000 lithium-ion battery cells, which Tesla buys from Panasonic. While the battery cells are similar to those used in laptops and game consoles, Tesla’s were jointly developed by Tesla and Panasonic specifically for electric vehicles.

Reno, with its proximity to Tesla’s Fremont factory, has always been considered a top contender, and Sandoval and U.S. Sen. Harry Reid, D-Nev., have been actively engaged in making northern Nevada’s case to Tesla.

The gigafactory is expected to drive down the cost of battery packs, which is key to making electric cars more affordable. Tesla plans to sell its Model 3 for roughly $35,000, or about half the cost of the cheapest Model S.

“By building its own battery facility, Tesla can take full control of its battery supply and eliminate that restraint, a shift that could mesh effectively with increased global distribution and demand from China,” said Karl Brauer, a senior analyst for Kelley Blue Book. “But long-term sustainability and profitability will require a high-volume, affordable model with widespread appeal. That remains the big challenge Tesla must overcome in the next few years.”

Tesla said sales of the Model S are “off to a very encouraging start in China,” with deliveries concentrated in the areas around Beijing, Shanghai, Shenzhen and Hangzhou.

The electric-car maker lost $60.7 million, or 50 cents a share, on $769 million in sales in the second quarter.

“The most important statement is the 100,000 run rate at the end of next year,” said Ben Kallo, an analyst with R.W. Baird.

Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.