U.S. electric car maker Tesla to build battery plant

High-profile U.S. electric vehicle maker Tesla Motors announced Wednesday plans to build a huge lithium ion battery factory, which is expected to bring down cell costs drastically.

Tesla, known for its expensive but highly admired electric sedans, said on its blog that, with its goal of producing a mass market electric car in about three years, it sees the opportunity to leverage the projected demand for lithium ion batteries to reduce their cost faster.

It plans to build a battery “Gigafactory” to achieve economies of scale and minimize costs, in cooperation with its strategic partners. Under the plan, the factory will be running by 2020 and produce “more lithium ion batteries annually than were produced worldwide in 2013.”

“By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent,” the blog post reads.

Tesla said it would invest 2 billion dollars and raise 1.6 billion dollars from investors for the battery facility, with the rest of the total cost of 4 billion to 5 billion dollars coming from its battery manufacturing partners, which Tesla doesn’t name in its plan.

Japanese technology giant Panasonic, now the major battery provider for Tesla’s electric vehicles, is believed to be one of Tesla’s partners in the project. Under agreements with Tesla, Panasonic will deliver 1.8 billion lithium ion cells over the next four years, which will enable Tesla to produce about 250,000 electric cars. Tesla was also approaching other battery suppliers, such as South Korea’s LG and Samsung, U.S. media said.

The factory will be between 500 and 1,000 acres in size and employ about 6,500 workers. Site selection is underway and Tesla has narrowed its options to four states: Arizona, New Mexico, Nevada and Texas. A major consideration is the sources of power for the facility, as Tesla hopes to use renewable energy, such as solar and wind power.

Tesla, based near Silicon Valley, California, is successfully selling its Model S, which was ranked America’s most-loved vehicle in 2013 despite a base price of 70,000 dollars.

The company plans to launch in 2017 a mass market model similar to the Model S but with a much lower price tag of around 35,000 dollars. It is believed lowering battery costs is key to Tesla’s efforts to market a more affordable electric car.