Tesla founder and CEO Elon Musk has exclusively revealed to Auto Express plans for a new electric BMW 3 Series rival, including its name – Tesla Model III.

There were rumours that a new smaller Tesla was to be called Model E, but in one of his most candid interviews yet, Musk revealed why he had to have a rethink on the name.

“We had the model S for sedan and X for crossover SUV, then a friend asked what we were going to call the third car,” Musk told us. “So I said we had the model S and X, we might as well have the E.

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“We were going to call it model E for a while and then Ford sued us saying it wanted to use the Model E – I thought this is crazy, Ford’s trying to kill sex! So we’ll have to think of another name.

“The new model is going to be called Model III, we’ll have three bars to represent it and it’ll be S III X!”

The new Model III is set to be unveiled in 2016 and on sale by 2017. It's most likely to be based on an all-new platform rather than a cut-down version of the one underpinning the Model S and Model X. The new technology will be the brainchild of Tesla’s British engineering chief Chris Porritt, who used to work with Aston Martin.

Tesla: UK research and development base plans

Musk announced on his recent trip to the UK that he planned to set up a research and development base over here and it could be up and running in time to feed into the Model III project.

The new car is rumoured to be about 20% smaller than the Model S and our image shows how it could look. Key to the new model, which Musk said should retail for around $35,000 (likely to equate to around £30,000 in the UK), is cheaper battery technology made possible by Tesla’s forthcoming Gigafactory.

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This new plant will produce batteries for all Tesla models, plus customers (rumoured to include Mercedes and Nissan) and a stationary storage programme to store energy from solar and wind farms. A decision on the location of the new Gigafactory is imminent, with US states Nevada, Arizona, California, New Mexico and Texas all in the running.

Tesla Model III: realistic range of over 200 miles

Musk also confirmed that he expected the new car to have a realistic range of over 200 miles with strong performance, like the Model S. “We want people to fall in love with their car and look forward to driving it,” he told us.

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As with the Model S and the upcoming Model X, the Model III will come with free use of Tesla’s Supercharger network, which Musk said will enable Tesla owners to drive the length and breadth of the UK by the end of 2015. And if you want to buy a Tesla, you have to buy it direct from one of the company’s own retailers rather than through a traditional dealer.

It’s a recipe that’s obviously working – Musk plans to sell around 35,000 cars this year, but the Model III is likely to propel sales well into six figures by the end of this decade.

Tesla Roadster to get range boost

Tesla’s very first car, the Roadster, was based on a lightweight Lotus Elise chassis and launched back in 2008. Its range of 245 miles is still pretty impressive, but Tesla boss Elon Musk is planning an upgrade for owners that will see that range increase to about 400 miles.

“The Roadster had an old generation battery,” he told us. “We’ll upgrade it to a new generation battery pack and it should have a range of about 400 miles, which will allow you to drive from LA to San Francisco non-stop.”

What do you think of Tesla's plan to break into the compact executive car market with the Model III? Can it succeed where so many have failed? Tell us your thoughts in the comments section below...