Gigafactory site
Heavy equipment is used to spray water at the Tahoe-Reno Industrial Center in McCarran, Nevada, Sept. 16, 2014. This industrial site is where Tesla Motors plans to build a $5 billion factory to produce lithium ion batteries for electric cars. Panasonic, Tesla's partner in the project, announced Friday that it has set up the US company that will be headquartered in the factory. Reuters/Max Whittaker

Panasonic Corporation announced Friday that it has established the U.S. company that will supply Tesla Motors Inc. with as many as 500,000 electric car battery packs a year by 2020. The announcement is part of the ongoing collaboration between the Palo Alto, California-based luxury electric car company and one of Japan’s largest electronics producers to build the so-called Gigafactory, a lithium-ion battery production facility.

“A new company, Panasonic Energy Corporation of North America, will be built in the Tesla Gigafactory,” the company said. “Panasonic plans to continuously expand operations meeting with Tesla’s vehicle delivery schedule.” The factory is being built at a site about 20 miles east of Reno, Nevada, after Tesla received a $1.3 billion series of tax breaks from the state. Tesla will not pay local or state property or business taxes until 2024 and is exempt from local and state sales taxes until 2034.

Panasonic has worked with Tesla since 2007 and supplies the automaker with its 18650 high-energy rechargeable batteries. Each Tesla Model S vehicle battery pack contains thousands of the 2-inch-long cells. Telsa will need a constant supply of billions of these cells a year to meet its goals as it unveils the Model X crossover next spring and the lower-priced Model 3 by 2017. The Gigafactory will also build solar energy storage units for SolarCity Corp., the solar energy systems supplier founded by Tesla CEO Elon Musk.

Tesla said in a regulatory filing released after markets closed Friday that the two companies have agreed to a production planning process for the $5 billion factory, a price for the batteries Panasonic will supply to Tesla and what Panasonic will spend in installing the manufacturing equipment at the site. Tesla is paying for the construction of the facility while Panasonic Energy Corporation of North America will make the batteries.

Telsa’s stock price is up over 6 percent since Thursday, to $255.21, after Musk posted a message on his Twitter feed about an Oct. 9 announcement of what is widely believed to be a dual-electric-motor all-wheel-drive Model S. Photos purporting to be a Tesla Model S P85D, an all-wheel drive version of the 85 kWh 416 horsepower high performance Model S, have emerged on Twitter: