"We will start off with the really fast, high-traffic corridors, because the assumption here is that if you want a pack swap, time is of the essence," said Musk. "So we will start off on the I-5 corridor in California and the Boston-DC route on the East Coast and they will be co-located with the Superchargers. "
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While Tesla has not finalized how much it will cost Model S and X owners to pay for putting in a new battery, Musk expects to charge customers somewhere in the range of $60 to $80. The price will vary around the country and will be comparable to the price of about 15 gallons of gas where the battery swap takes place.
After a battery swap, Model S owners will have the option of either keeping the loaner battery or getting their original battery pack back.
It's a small price that should not stop Tesla owners from using the service on long drives.
"You will have the choice of faster at the same price you would pay for gasoline, or free (using the Tesla Supercharger) and wait a bit longer," said Musk.
Eliminating Range Anxiety
How big of a deal is the battery swap option for Tesla?
Potentially it could be huge. It remains to be seen whether Tesla owners use battery swaps in large enough numbers to make the service pay off for Tesla.
But the key is it gives electric car owners a speedy option to eliminate range anxiety. Instead of building in a 30- or 40-minute break to recharge every 260 miles on a road trip, Tesla owners can theoretically zip in and zip out of battery swap.
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If this winds up working in real life as Musk laid it out Thursday night, it would make long drives in an electric car much more reasonable.
After the demonstration Musk talked about his hope to clear one of the biggest hurdles slowing down electric car sales. "We need to address the reasons that people are not buying electric cars. So in order to have mainstream adoption, people need to feel that they have the same level of freedom that they have with gasoline cars," he said.
—By CNBC's Phil LeBeau. Follow him on Twitter
Questions? Comments? BehindTheWheel@cnbc.com.