Besides the glass roof and spare, touchscreen-equipped interior, the magic of Tesla's newly available Model 3 lies beneath the hood.

Panasonic and Tesla teamed up to produce a new type of battery specifically for the Model 3, Tesla's first mass-market vehicle. This design is rumored to be 44160 lithium-ion cells, which measure 44 millimeters by 160 millimeters and allow the manufacturers to pack in more energy density with less cost in material and labor.

If the Model 3 battery comes in the 44160 cylindrical battery cell format, as a tipster claims, it would be larger than the cylindrical cells used in the Model S and the Model X. This is why the Model 3 is believed to have just four battery modules, while the previous models have 16.

That newfound efficiency was key to achieving the record in electric-vehicle price per mile of range.

The upgraded version of the Model 3, selling for $44,000, provides 310 miles of range. That distance on a single charge comes second only to the Tesla Model S 100D, which retails at just shy of $100,000. The enhanced Model 3, though, leads the current roster of electric vehicles in terms of range value, with a cost of $141.94 per mile of range (Bloomberg compiled a handy chart).

The basic Model 3 brings 220 miles of range for $35,000, or $160.54 per mile. That falls just shy of the Chevy Bolt, which beat the Model 3 to market with 238 miles of range at $37,495. Also, it's interesting to note that the long-range Model 3 is $9,000 more expensive than the short-range version, but cheaper on a per-mile basis. 

The real feat for Tesla will be hitting these impressive numbers at scale. The company will have to cram more energy density into its battery packs, while lowering the cost and scaling up production from zero to 20,000 cars a month by December, and 50,000 a month by the close of 2018.

Packing a punch

Tesla did not reveal the exact capacity of the Model 3 battery packs, and it's too soon for a buyer to disassemble one and count the cells.

Close observers of the company estimate the capacity is around 50 kilowatt-hours for the standard and 75 kilowatt-hours for the enhanced range model. The Model S battery options range from 75 kilowatt-hours to 100 kilowatt-hours.

That means Tesla's Model 3 is delivering comparable battery capacity at roughly half the cost of the Model S. Some of the savings come from omitting the luxury bells and whistles, but the biggest difference is the battery.

"There are several advantages to larger form factor: higher performance and lower cost, both in materials and labor," said Ravi Manghani, energystoragedirector at GTM Research. "The higher performance is due to higher current, and thereby higher kilowatt-hours per cell, as well as denser battery pack assembly."

Higher capacity cells mean the modules need fewer cells, and the pack needs fewer modules, to deliver an equivalent range. The manufacturer saves on time and materials that used to go into packaging around the cells, and the overall pack becomes more energy dense as a result.

That's good news for EV drivers who want to go farther without paying luxury prices. But it comes with a cost.

"Denser cells have much higher levels of thermal runaway risk," Manghani said. "Tesla is shooting for much more aggressive EV range per charge, and there are only so many ways to achieve this without compromising on battery pack size or EV performance."

Growth area for Panasonic

The collaboration with Tesla forms a central pillar of Panasonic's corporate strategy, which aims to shift from the highly competitive consumer electronics space to the higher value advanced automotive components market. 

"For battery cells for the Model 3, costs outweighed profit in the first quarter," financial chief Hirokazu Umeda announced on an earnings call Monday. "As production accelerates toward next year, we expect the business to contribute profit."

That's not surprising, as Panasonic only started production for the Model 3 batteries in June. It hasn't yet reached the economics of scale that the Gigafactory was designed to unlock.

Success of the Model 3 will be a boon to Panasonic, and could influence decisions on battery form factors at competing companies. Most companies making larger form-factor cells use pouch or prismatic cells, Manghani said; Tesla would be an outlier for making cylindrical cells larger than the classic 18650 format, if that’s what the new format really is.

The field of automakers vying for consumer EV market share has grown, and success will come down to continued improvements of battery technology. It will be harder to pitch a customer on a BMW i3, for instance, if they could get nearly three times the range with the enhanced Model 3 for a few thousand dollars more.

Toyota raised the stakes on the battery race last week by announcing plans to commercialize solid-state batteries for EVs in the early 2020s. Solid-state technology promises even higher energy density than current lithium-ion batteries, with much lower safety risk.