Panasonic, Tesla Motors join forces for lithium-ion battery factory

Elon Musk's electric car company Tesla Motors has signed an agreement with the electronics company Pansonic to build and operate a massive endeavor known as the Gigafactory.

A statement by Panasonic said that the responsibilities for the Gigafactory would be divided between the two companies. Tesla will provide and manage the land, buildings, and utilities. Panasonic will manufacture and supply lithium-ion cells in the shape of cylinders. Panasonic will also invest in the facilities and equipment needed for such manufacturing based on agreements with Tesla.

In the meantime, Tesla will continue to purchase batteries from Panasonic's factory in Japan for use in Tesla vehicles while the new facility is under construction.

The main purpose of the Gigafactory will be to accomplish economies of scale in battery production. The high cost of manufacturing lithium-ion batteries is why the current crop of Tesla Motors models costs around $100,000.

Chief Technical Officer and Co-founder of Tesla Motors JB Straubel said, "The Gigafactory represents a fundamental change in the way large scale battery production can be realized. Not only does the Gigafactory enable capacity needed for the Model 3 but it sets the path for a dramatic reduction in the cost of energy storage across a broad range of applications."

In addition to economies of scale, cost savings will be realized in other areas of design to help make Tesla's electric cars more affordable. For example, the batteries will be specially designed for vehicles, rather the general use batteries that must now be manipulated to accommodate Tesla's needs.

The Gigafactory will also house the operations of a number of suppliers necessary for the project. This will help to lower packaging and transportation costs, further driving down the cost of Tesla Motor products.

In the second quarter of 2014, Tesla reported a loss $62 million.