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Tesla and Panasonic said to reach agreement on Gigafactory

Tesla and Panasonic have reached an agreement on the so-called Gigafactory, a factory for building batteries for future Tesla electric cars.

Tesla's upcoming Model X: Tesla will need to have more battery capacity as it brings out new models like the Model X and a future $35,000 sedan. Tesla

Panasonic has reached a basic agreement with electric-car maker Tesla to participate in a large-scale battery plant, or a so-called Gigafactory, according to a Japan-based report.

Panasonic is expected to invest between 20 billion yen and 30 billion yen (about $194 million to $291 million) initially and will be in charge of equipping the factory with the machines to produce the lithium-ion battery cells, Japan's Nikkei reported in its Tuesday edition.

An official announcement about the partnership will be made by the end of July, the Japanese business daily said.

Tesla is planning to begin the first phase of construction this fiscal year, the report said.

Battery production would begin for Tesla cars in 2017, according to the report. Maybe not coincidentally that's when Tesla is slated to begin making its $35,000 Model 3 sedan, which will require a much larger supply of batteries than Tesla is currently capable of, John Voelcker, senior editor for High Gear Media, recently told CNET.

Gigafactory capacity will be added in phases, as demand requires. The aim is to produce enough battery cells by 2020 to equip 500,000 electric vehicles a year, Nikkei said.

That dwarfs current production. Annual output of its Model S was estimated to be somewhere in the neighborhood of 20,000 cars in the US (Tesla's primary market) last year, according to Green Car Reports.

Total investment in the factory may reach $5 billion, with Panasonic contributing about $1 billion, according to Nikkei.

The report did not mention, however, where the plant's site would be. Tesla is evaluating three sites in the US.

Panasonic owns a stake in Tesla and makes the batteries used in Tesla's cars.

Tesla declined to comment on the report.