The approach Tesla is taking with Panasonic is different from that of other automakers, such as Nissan and General Motors, that are developing electric cars and plug-in hybrids (which run extensively on electric power). Tesla uses small cylindrical cells of the type used inside the battery packs in laptops and other consumer electronics, while the other automakers are turning to larger, flat battery cells developed specifically for use in cars. Straubel says that the fact that the manufacturing process for cylindrical cells is well-understood from many years of experience helps drive down costs and improve performance and reliability.

But flat batteries developed specifically for cars may ultimately prove better for electric vehicles, since they are designed to last longer, says Menahem Anderman, an automotive battery industry analyst. Also, because the flat batteries are larger, fewer cells are needed, reducing the number of things that can go wrong inside battery packs. Tesla uses thousands of cells, whereas other automakers can use just a couple hundred.

There's also the question of safety. The new flat batteries typically use chemistries that are less volatile than those used in laptops, making it easier to ensure they don't catch fire or explode. Indeed, the lithium-nickel chemistry that Panasonic uses in its high-energy cells can be even less stable than the materials in conventional laptop batteries. Tesla has worked around this by implementing special safety features inside its battery packs.

Straubel says that, for now, the manufacturing experience with cylindrical cells outweighs the potential advantages of flat cells, but as Tesla and Panasonic collaborate, they may eventually turn to flat cells.

Panasonic's partnership with Tesla is part of a larger strategy to dominate the market for advanced automotive batteries. Panasonic is already a leading manufacturer of batteries for hybrid vehicles, which typically use nickel-metal hydride batteries. Together with Sanyo, a subsidiary it acquired at the end of last year, it provides nickel-metal hydride batteries to several major automakers, including Toyota, Honda, and Ford, and has an agreement to develop batteries for Volkswagen. In November, a joint venture between Toyota and Panasonic started manufacturing lithium-ion batteries for the plug-in hybrid version of the Toyota Prius.