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Tesla teams with Panasonic to build battery 'gigafactory'

The Tesla factory in Fremont, Calif. on June

The Tesla factory in Fremont, Calif. on June 22, 2012. Panasonic has agreed to partner with Tesla to build cylindrical lithium-ion cells and invest in equipment, machinery and other tools, the Osaka, Japan-based company said July 31, 2014, in a joint statement with Tesla. Photo Credit: AP

Panasonic Corp., the main supplier of lithium-ion cells for Tesla Motors Inc. electric cars, has signed a deal to help build the battery factory chairman Elon Musk needs to lower sticker prices.

Panasonic will build cylindrical lithium-ion cells and invest in equipment, machinery and other tools, the Osaka, Japan-based company said Thursday in a joint statement with Tesla. Tesla will handle the land, building and utilities and use the cells to assemble battery packs. The company has said it will spend about $2 billion on the project and estimates the total investment could be as much as $5 billion by 2020.

The maker of the $71,000 Model S has courted Panasonic to invest in the plant that Musk is depending on to produce cheaper batteries and transform Tesla into a mass-market carmaker capable of producing 500,000 vehicles a year. Panasonic, which owns 1.1 percent of Tesla, signed a preliminary agreement to participate in the project in May after voicing hesitancy about the level of investment risk.

“Panasonic’s lithium-ion battery cells combine the required features for electric vehicles such as high capacity, durability and cost performance.,” Panasonic executive vice president Yoshihiko Yamada said. “And I believe that once we are able to manufacture lithium-ion battery cells at the gigafactory, we will be able to accelerate the expansion of the electric vehicle market.”

Tesla is studying potential sites in Arizona, California, Nevada, New Mexico and Texas for the factory and may initially select three for preparation work. The Palo Alto, California-based company will choose which site to build to completion late this year, Musk said during an annual shareholder meeting in June.

Simon Sproule, a Tesla spokesman, declined to discuss whether the carmaker will name the initial factory sites Thursday when it releases second quarter results.

Panasonic is cementing its participation in the project after Tesla raised about $2.3 billion in March to help fund it. Musk faces skeptics in his effort to build a factory with enough scale to cut battery costs by about 30 percent. Standard & Poor’s slapped Tesla with a junk credit rating in May and cited "significant risk’’ in its gigafactory plans.

“If Tesla’s EVs do not sell in line with Tesla’s expectations, Panasonic may not be able to recoup its investment,” Masahiro Wakasugi, a Tokyo-based analyst at BNP Paribas, wrote in a July 10 report. “The negative impact, if the plan is not a success, would be considerable.”

Cheaper batteries will be crucial for Tesla to introduce more affordable models beginning with the Model 3 sedan due by 2017. Tesla plans to sell the car at a base price of about half the U.S. cost of its flagship Model S.

Musk, who also runs rocket maker Space Exploration Technologies Corp. and SolarCity Corp., plans to make stationary batteries to store power at homes and buildings with solar panels at the gigafactory in addition to batteries for Tesla cars.


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