Tesla Motors Inc (NASDAQ:TSLA) is planning to build a gigafactory for Lithium-ion batteries, which is expected to be operational by 2017. According to Jefferies analyst Atul Goyal, the electric vehicle maker has partnered with Panasonic for the new factory. Goyal estimates that it would require an investment of close to $1 billion. The plant will produce lightweight, small batteries for Tesla and other companies like Toyota.

Tesla Model X

Tesla has to bring down costs before introducing mass-market cars

Tesla Motors Inc (NASDAQ:TSLA) forecasts to sell 35,000 Model S sedans this year. As the company gears up to bring new cars such as Model X and Model E to the market, it plans to reduce the price of electric vehicles to match gasoline-car models. The Li-ion battery is one of the most expensive parts of an electric vehicle. Building scale will reduce costs and bring down the price tag for Li-ion batteries. As a result, Tesla will be able to reduce the price of its vehicles. Elon Musk plans to bring a true mass market electric car with a price tag of around $35,000 by 2018.

Tesla and Panasonic both need each other

That’s why Tesla Motors Inc (NASDAQ:TSLA) needs Panasonic Corporation (NYSE:PC) (TYO:6752) and its battery production technology to fulfill its ambitions. The San Francisco-based company has already signed a deal with Panasonic to supply two billion battery cells between 2014 and 2017. At the time, Elon Musk said that the cylindrical battery cells made by the Japanese company has played a crucial role in the success of Tesla. In fact, the 265-mile range of the Model S might not have been possible without Panasonic’s high-performance batteries, Musk added. While announcing that deal, Musk had also stated that he was planning to strengthen Tesla’s partnership with the Japanese company.

Jefferies analyst Atul Goyal said that the two companies are likely to develop strong partnerships as both parties need each other. Panasonic Corporation (NYSE:PC) (TYO:6752) is slowly exiting its consumer electronics business to focus on the high-margin auto component business.

Tesla Motors Inc (NASDAQ:TSLA) shares soared 3.99% to $257.87 at 12:27 PM EST.