California-based Tesla, best known for its $109,000 all-electric Roadster, plans to use Panasonic's battery cells in its newest battery packs for electric cars.
Panasonic is pushing aggressively into the green technology sector and recently acquired a majority stake in Sanyo Electric Co Ltd, the world's largest rechargeable battery maker.
Panasonic also runs a joint venture with Toyota Motor Corp to develop and make hybrid and electric car batteries.
Lithium-ion batteries are seen as the most practical option available now for electric vehicles as they have the higher energy density required to feed the electric motors that power the car instead of an engine.
Tesla, which has delivered more than 900 electric cars to customers in North America and Europe, currently uses cells from multiple battery suppliers in its battery packs.
Separately, Tesla also said it has hired former Fiat SpA executive Cristiano Carlutti to lead the electric vehicle manufacturer's European operation.
(Reporting by Poornima Gupta; Editing by Tim Dobbyn)