PALO ALTO, CA -- Panasonic Corp. and Tesla Motors have finalized a supply agreement for automotive-grade lithium-ion battery cells that will be used in Tesla's Model S.

The agreement supplies Tesla with Panasonic's lithium-ion battery cells to build more than 80,000 vehicles over the next four years. It guarantees the availability of enough cells in 2012 to meet Tesla's production ramp-up and fulfillment of more than 6,000 existing Model S reservations. 

Tesla Model S

Tesla Model S

This supply agreement helps ensure Tesla will meet its cost and margin targets for Model S, the automaker said.

In addition, Tesla said, the agreement builds upon a multi-year collaboration between Panasonic and Tesla to develop next-generation automotive-grade battery cells and accelerate the market expansion of electric vehicles.