Electric car manufacturer Tesla is to partner with Japanese electronics giant Panasonic to build a $5-billion battery manufacturing plant on U.S. soil.

The Gigafactory, as it's being called, will produce lithium-ion cells, modules and packs to power Tesla's vehicles. The location of the factory has yet to be announced.

Tesla already buys batteries from Panasonic factories, but a new high-production battery factory will be necessary if the company is to fulfil its ambition of being a mass-market automaker.

The Model S sedan, already on the roads, and Model X crossover vehicle, scheduled for launch by the end of this year, have been designed to use lithium-ion battery cells purchased from Panasonic.

The Gigafactory is being built to handle Tesla’s Model 3, a more economical model still being designed.

Tesla chief technical officer JB Straubel says the plant will put the company on a "path for a dramatic reduction in the cost of energy storage."

The factory will produce 35 gigawatt-hours of battery cells and 50 gigawatt-hours of packs per year by 2020 and employ around 6,500 people.

Tesla is to manage the factory and create the packs for its cars, with Panasonic building the battery cells.

Tesla claims its current leading-edge battery technology provides a range of about 425 kilometres. Improving range and creating infrastructure for speedy recharging are both critical for electric cars to come into widespread use.