As we all know, Tesla is looking to build a battery Gigafab somewhere in the southwest of the US. Tesla [NADSAQ:TSLA] has not quite decided on a location quite yet, however there is a very short list of a few states and that list continues to narrow. Obviously, many states would like Tesla to build their fab in their states, but the gigafab will have to be close enough to Tesla’s factory in Fremont that they can still get their own batteries into their cars reasonably easily. As such, I suspect that the gigafab will very likely be put somewhere in Nevada, Arizona, New Mexico or California. Originally, California had been out of the running for the battery gigafab but it appears to be back in the running once again.

Nevada and Arizona seem the most logical because they won’t be too far from the Fremont NUMMI plant and they will still be close enough to a major port that batteries can be shipped out or moved quickly. There are tons of factors in this equation, and one of them is how Tesla is going to fill this gigafab’s capacity. Because, right now, Tesla is only using about 50% of their capacity at the NUMMI plant in Fremont and they’ve been building cars there for years. Eventually, I suspect they will reach capacity once they start to produce the Model X in addition to the Model S. And there’s a very good chance that the upcoming Model 3 will very likely require an entirely new factory.

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Now, getting to Panasonic’s involvement. Tesla and Panasonic have reached a deal for Panasonic to invest in Tesla’s gigafab (Tesla calls it a gigafactory). Nikkei reports that Panasonic says they will invest between $200 million and $300 million in the factory, and an official announcement is expected by the end of the month. Panasonic had already signed an LOI (letter of intent) to join the battery factory in May, but there were doubts it would go through as the company went under a major restructuring. Panasonic is already the main supplier of battery cells for Tesla, so this arrangement is not between two companies that are strangers. In fact, these two companies are very close partners and are already doing heavy business together. Tesla said that the total fab/factory cost could be as high as $5 billion, partially driven by its own sustainable design and the sheer size of the factory. Tesla expects that they will break ground on the gigafab/gigafactory later this year and expect to reach volume production by 2020, manufacturing enough battery packs for about 500,000 cars a year.

 

Update: Tesla has officially signed the agreement with Panasonic.