There are several reasons but we’ll take a look at a few of them:
1) Cost – 18650 (as the batteries are classified) are being produced for quite some time now and are already widely used throughout the world, in our laptops, cordless phones etc. This means that companies like Panasonic, Samsung etc. are currently producing these cells in fully depreciated factories and have already started optimizing the manufacturing costs. Thus, by far, they are the cheapest lithium ion cells available out there.
2) Thermal performance – Cooling is much easier and easy to control. Tesla can have a cooling system around several cells and cool them much better rather than trying to cool one huge hunk of a pack from outside.
3) Reliability – Because of the decade long experience of cell manufacturers with this particular standard, quality has really improved and failures are really low.
4) Density – Weird as it sounds, the current 18650 cells from Panasonic that Tesla plans on using have one of the highest possible densities (though not every chemistry can be directly compared). This mostly stems from the fact that due to higher (and rising) volumes, there’s a tremendous incentive for Panasonic to improve this chemistry – which other manufacturers lack. For example, Tesla’s usage of 18650 cells is expected to double the global production of these cells within the next 2-3 years (Tesla alone could double global demand for the laptop batteries it uses).
5) Isolation – in case of a failure or a fire, it is much easier for Tesla to individually isolate these cells (Tesla uses double fuses on each and every single of its 6700 cells), thus making the packs super-safe. Larger cells will lack this feature and can potentially become a bomb in case of an event like thermal runway.