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Tesla, Panasonic, announce Gigafactory operating agreement

The Gigafactory will combine several companies under one roof to both manufacture and recycle lithium-ion battery packs
The Gigafactory will combine several companies under one roof to both manufacture and recycle lithium-ion battery packs
Tesla Motors, used by permission

Panasonic and Tesla Motors have finally announced, on Thursday, the expected deal under which the two companies will collaborate to build the Gigafactory. That factory, whose location has not been announced, is slated to dramatically increase total worldwide production of automotive grade lithium ion battery packs. Tesla Motors needs the Gigafactory to meet the 2017 deadline to begin selling the Tesla Model III, to have enough battery packs to meet the Model III production volume.

The agreement announced today is in line with the concept Tesla Motors unveiled earlier this year. Tesla Motors will own the land, buildings, and utility infrastructure to support the Gigafactory. Several companies, principle among them Panasonic, will operate jointly within the building with each company manufacturing specific components. Panasonic's role will be to manufacture cylindrical lithium-ion cells, using precursor materials supplied by the other companies located on-site, supplying those to Tesla Motors, along with any mutually agreed upon equipment.

Tesla Motors will take those cells to build battery packs not only for Tesla Motors cars, but other products the company plans to sell such as grid energy storage systems.

The Gigafactory will be managed by Tesla. Panasonic is the principle partner in the project, and will be occupying about half of the space. By integrating several companies into one location some costs will be avoided, such as shipping precursor materials long distances between factories.

It's planned that the Gigafactory will not only manufacture new battery packs, but recycle used packs into new battery packs.

JB Straubel, Chief Technical Officer and Co-founder of Tesla Motors 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."

Yoshihiko Yamada, Executive Vice President of Panasonic, added, "We have already engaged in various collaborative projects with Tesla toward the popularization of electric vehicles. Panasonic's lithium-ion battery cells combine the required features for electric vehicles such as high capacity, durability and cost performance. 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."

The big question hovering over the Gigafactory is its location. Today's press release didn't disclose that location, however some recent news suggested a front-runner location near Reno Nevada. Or maybe in California. Later today Tesla Motors is scheduled to hold a conference call for news analysts, and might discuss the Gigafactory location and other news.

Tesla Motors claims the Gigafactory will implement a dramatic battery pack cost reduction. That comes from the tight integration between suppliers, and an economy of scale not yet seen in battery pack production.

Because battery pack cost is the biggest component of electric car cost. A drastic cost reduction will allow Tesla Motors to meet the $35,000 MSRP targeted price point for the Model III. That car is slated to start production in 2017 at 100,000 units per year, expanding to 200,000 units per year in the following years.