The ‘Gigafactory’ is claimed to be the world’s largest battery plant, expected to be operational by 2017 and to employ 6,500 people building packs for over 500,000 vehicles annually by 2020.

Under the agreement, Tesla will be responsible for the land, buildings and utilities, while Panasonic will take around half of the planned manufacturing space to produce its cylindrical lithium-ion battery cells.

The remainder of the factory will be taken up by Tesla and its key suppliers, and will be used to build the battery packs for the cells. The carmaker said it expects continued cost reductions through economies of scale, cutting packaging, transportation and duty cost and optimising the batteries themselves.

Tesla will continue to purchase cells from Panasonic’s factory in Japan, and ongoing discussions will set out plans for sales, operations and investment in the facility.

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. 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.’