Tesla has reached a major milestone in its bid to diversify from car maker to sustainable energy company as well, beginning to mass-produce lithium-ion battery cells at its $5 billion factory in Nevada.

The 2170 cell, designed and produced in association with Panasonic, will power Tesla’s Powerwall 2 and Powerpack – batteries for homes to store solar power.

In the year’s second quarter the ‘gigafactory’ will begin producing battery cells for Tesla’s Model 3 sedan, which is slated to go into production mid-year. It will also produce the electric motors and gear boxes for the Model 3.

Tesla confirmed previously that it was installing drive production lines at the Gigafactory, supposedly only for building battery packs, but had advertised for staff for the Nevada plant.

Tesla expects the factory to reduce the per-kilowatt-hour cost of its lithium-ion battery packs by more than 30 per cent by the end of 2017, the first year of volume production.

That price reduction will allow Tesla to make a massmarket electric car 50 per cent cheaper than its luxury Model S. It plans to price the Model 3 at US$35,000 (AU$46,000).

Tesla claims that by 2018 the factory will produce 35 gigawatt-hours a year of lithium-ion battery cells, almost as much as the rest of the world’s battery production combined.

After announcing the Model 3 last year, Tesla received 276,000 pre-orders. Model 3 production is also currently ongoing in the company’s Fremont, California, factory.

The Model 3 is expected to have Tesla’s solar roof technology, which will be made possible by sister company SolarCity. Tesla has also recently rolled out an updated version of its Autopilot technology to enable autonomous driving.