Feb. 26, 2014 4:30 p.m. ET
Panasonic is currently the primary battery supplier for Tesla's Model S. Reuters
Electric car maker Tesla Motors Inc. TSLA +2.02% Tesla Motors Inc. U.S.: Nasdaq $253.00 +5.00 +2.02% Feb. 26, 2014 4:00 pm Volume (Delayed 15m) : 23.19M AFTER HOURS $261.60 +8.60 +3.40% Feb. 26, 2014 7:59 pm Volume (Delayed 15m): 1.58M P/E Ratio N/A Market Cap $30.40 Billion Dividend Yield N/A Rev. per Employee $679,317 02/26/14 Tesla Lifts Curtain on $5 Bill... 02/26/14 Morning Links: Bitcoin Blowbac... 02/25/14 Panasonic, Tesla in Talks on B... More quote details and news » TSLA in 
Your Value Your Change Short position said on Wednesday its proposed battery "Gigafactory" would cost up to $5 billion and allow it to sell as many as 500,000 vehicles a year.
The Palo Alto, Calif., company outlined plans for a factory that would employ up to 6,500 people and cover as many as 1,000 acres, including solar and wind farms to supply its power needs. It is evaluating sites in Nevada, New Mexico, Arizona and Texas, Tesla said in a regulatory filing.
The proposed 10 million-square-foot facility would make the powerful and pricey lithium-ion batteries that power its Model S and future vehicles. Tesla has said it needs its own production to meet expected demand and hit its cost target for a more affordable car.
Tesla said it would raise $1.6 billion through a bond issue to help finance construction. The auto maker said it would contribute $2 billion toward the proposed battery factory, which would also make storage batteries for electric utility uses. It estimated the plant's cost at between $4 billion and $5 billion with first production in 2017.
Tesla Chief Executive Elon Musk, who last November first raised the idea of a "Gigafactory" that takes in raw materials and produces finished batteries, has said he intends to build the factory with unidentified partners.
On Wednesday, Panasonic Corp. 6752.TO +2.62% Panasonic Corp. Japan: Tokyo ¥1292 +33 +2.62% Feb. 27, 2014 3:00 pm Volume : 34.87M P/E Ratio 26.52 Market Cap ¥2933.85 Billion Dividend Yield 1.24% Rev. per Employee ¥25,679,700 02/04/14 Japan Blue Chips Log Stellar E... 02/04/14 As TVs Lose Luster, Panasonic ... 01/07/14 Toshiba Says 4K Isn't Just For... More quote details and news » 6752.TO in Your Value Your Change Short position said it was "considering various options to strengthen our ties" with Tesla. Panasonic, the primary battery supplier for Tesla's Model S, is considering a nearly $1 billion investment with other Japanese suppliers in the battery factory. Tesla's announcement Wednesday didn't mention Panasonic.
Mr. Musk, who is chairman of SolarCity Corp. SCTY +4.62% SolarCity Corp. U.S.: Nasdaq $84.93 +3.75 +4.62% Feb. 26, 2014 4:00 pm Volume (Delayed 15m) : 9.01M AFTER HOURS $85.89 +0.96 +1.13% Feb. 26, 2014 7:59 pm Volume (Delayed 15m): 57,592 P/E Ratio N/A Market Cap $6.75 Billion Dividend Yield N/A Rev. per Employee $56,498 02/26/14 With Residential Solar Market ... 02/25/14 Panasonic, Tesla in Talks on B... 12/04/13 Parade of Deals to Cap Big Yea... More quote details and news » SCTY in Your Value Your Change Short position , a solar energy provider that offers Tesla battery packs to users of its solar arrays, declined to comment through a spokeswoman. SolarCity's battery packs store electricity for use during peak demand or nighttime use.
When it reaches full production in 2020, the Gigafactory would produce more lithium-ion batteries than currently are produced today for all uses, the company said. At full capacity, it would produce 50 gigawatt-hours of battery packs a year.
Tesla expects that in its first year, the new factory would reduce its battery costs by more than 30%. First production is timed to coincide with deliveries of its first mass-market electric vehicle. That car is expected to travel 200 miles on a single charge and be priced starting at $35,000.
While electric-car manufacturers don't publicly disclose their battery costs, Dan Hearsch, a battery expert at consultants AlixPartners LP, said the average cost generally is around $400 a kilowatt-hour, though Tesla's may be lower.
Tesla is attempting to break through $200 a kilowatt-hour. At that price, the batteries are so relatively inexpensive that they become affordable as backup power supplies to the electric-power industry, said Sam Jaffe, an analyst at energy market researcher and consultants Navigant Research.
"If you get near $150 per kilowatt-hour, you really open up these batteries for static storage" which could be a new business for Panasonic, he said.
According to Navigant, in 2012 the entire lithium-ion battery industry produced just under 27 gigawatts of batteries, with most going to electronics applications such as laptop computers and mobile phones.
Mr. Jaffe said the size and proposed output of the Tesla factory would require an enormous amount of electricity and natural gas to operate. Tesla provided an artists rendering of the complex showing a large array of solar panels and wind turbines supplying energy to the operation. Mr. Musk has said his plan is to use renewable energy.
Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co. and Deutsche Bank AG are underwriters for the auto maker's debt issue.
Tesla's Fremont, Calif., assembly factory, which sits on a 370-acre site, is more than 5 million square feet. Tesla only uses a fraction of that plant today.
A person familiar with the discussions in Nevada said Tesla officials are considering the Reno area for the plant. Reno is home to a startup lithium mining-and-production operation owned by Western Lithium USA Corp. The miner is developing a pilot plant to create lithium carbonate, a key ingredient in making lithium-ion batteries.
—Kana Inagaki contributed to this article.
Write to Mike Ramsey at michael.ramsey@wsj.com
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