Panasonic is planning to invest about $1 billion in Tesla Motors Inc.'s planned lithium-ion battery "Gigafactory," according to Reuters, citing a source familiar with the matter.

The factory, which will be constructed in the United States, will have a total construction cost of $5 billion.

Panasonic, which is currently already a battery supplier for the electric vehicle manufacturing company, will put in an initial investment of about $200 million to $300 million. The company said back in May that it wished to be the only battery cell manufacturer at the factory.

The initial investment of Panasonic will be used to supply the factory with the required machinery to manufacture battery cells.

While a spokesman for Panasonic declines the confirmation of the figures regarding the company's planned investments, the same figures were also reported by the Nikkei daily newspaper.

The source also revealed that a basic agreement between the two companies regarding the planned project will be released by the end of this week, with both Panasonic and Tesla set to reveal their quarterly earnings on Thursday.

The location of the factory is not yet finalized, though Tesla has been looking at three potential sites. However, reports have suggested that Sparks, Nevada could be the frontrunner 

Tesla is expecting that the factory will be able to produce more lithium-ion batteries in 2020 than the number of lithium-ion batteries produced in the whole world in 2013. This could lead to doubled demand for the batteries, which would drive down costs. In addition, previously untapped lithium reserves, such as those in Afghanistan, will increase in value both economically and politically.

Tesla has forged a close business relationship with Panasonic as the company uses lithium-ion batteries in its electric cars that are similar to the ones used in laptop computers, as supplied by Panasonic. By being Tesla's battery supplier, Panasonic has been helped in taking a 39 percent share of the electric-car battery market, which is valued at $660 million annually.

Tesla has recently confirmed rumors of the Tesla Model 3, which is a new, compact electric vehicle that will likely sell for about $35,000. 

The Model 3 will feature an entirely new platform, rather than utilizing the same cut-down type of Tesla's Model S and Model X. Tesla looks to have the vehicle 20 percent smaller in size compared to the Model S, which would make it as small as the BMW 3 Series.

The Model 3's low price is due to the cheaper battery technology that will be produced at the planned "Gigafactory," which will also be manufacturing batteries for non-Tesla vehicles and for solar-powered and wind-powered projects.