Tesla Motors, Inc. and Panasonic Corporation last week announced the signing of an agreement to cooperate on the construction of a large-scale battery manufacturing plant in the U.S., dubbed the "Gigafactory".

The project will see Tesla provide the land, buildings and utilities for the factory, with Panasonic supplying its cylindrical lithium-ion cells for the creation of battery modules and packs. Tesla will assemble the batteries on a grand scale, with the goal of advancing the mass market for cost-effective batteries and propelling the demand for electric vehicles. Planned production capacity is 35 GWh for cells and 50 GWh for battery packs annually by 2020.

The full details of the partnership between Panasonic and Tesla have yet to be fully finalized, but Tesla did confirm that it will manage the plant, with Panasonic the principal partner responsible for the steady supply of lithium-ion battery cells. Panasonic's presence at the plant will be approximately 50%, with Tesla's other key suppliers comprising the other half of the facility's floor space.

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

The executive VP of Panasonic, Yoshihiko Yamada, added that Panasonic's lithium-ion battery cells were the ideal component for Tesla's electric vehicles, delivering "high capacity, durability and cost performance," Yamada said. "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," he added.

The announcement is potentially exciting news for a solar industry eager to achieve continued cost reduction in energy storage – one of the chief bumps in the road against wider adoption and deployment of PV technology.

The Gigafactory will achieve cost reductions through an optimized manufacturing process driven by economies of scale that were previously unfeasible, and largely unobtainable in battery cell and pack production.

Tesla Motors co-founder and CEO, Elon Musk remarked last November that the company was hoping to work more closely with Panasonic on the realization of such a goal. The SolarCity chairman announced at the time that the chronic shortage of battery cells on the market was hindering the advancement of the Tesla model. And the creation of a battery factory of this scale (it hopes to employ more than 6,000 staff once completed in 2020) was necessary to ensure that the company could enjoy a steady, long-term supply of battery packs that could match its own expansion plans.

The factory is expected to cost in the region of $4 billion to $5 billion, with Tesla stumping up at least $2 billion.