FORM 10Q
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549

(Mark One)
[X]  QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1998
                               OR

[   ]     TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission file number 0-16323

                       ELECTROSOURCE, INC.
                                
     (Exact name of Registrant as specified in its charter)
                                                 
           Delaware                         742466304
(State or other jurisdiction of  (I.R.S. Employer Identification
incorporation or organization)                 No.)
                                                 
                                                 
 2809 Interstate 35 South, San                78666
   Marcos, Texas (Address of                (Zip Code)
      principal executive
           offices)                              
                                                 
Registrant's telephone number,            (512) 753-6500
     including area code:

     Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X  No __

       APPLICABLE  ONLY TO ISSUERS INVOLVED  IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.

Yes __  No __
             APPLICABLE  ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:  7,834,531 shares as of November 11, 1998.


                  INDEX TO FINANCIAL STATEMENTS
                       September 30, 1998
                                

ELECTROSOURCE, INC.              COMMISSION FILE NUMBER   0-16323


PART I - FINANCIAL INFORMATION

  Item 1.  Financial Statements.

     Condensed Balance Sheets at September 30, 1998  (Unaudited)
       and December 31, 1997                              Page  3

     Condensed Statements of Operations for the three and nine
       months ended September 30, 1998 and 1997
       (Unaudited)                                        Page  4

     Condensed Statements of Cash Flows for the nine months ended
       September 30, 1998 and 1997 (Unaudited)            Page  5

     Notes to Condensed Financial Statements (Unaudited)  Page  6

  Item 2.  Management's Discussion and Analysis of Financial
     Condition and Results of Operations (Unaudited)      Page 11

PART II - OTHER INFORMATION

  Item 1.  Legal Proceedings                              Page 17

  Item 2.  Changes in Securities                          Page 17

  Item 3.  Defaults Upon Senior Securities                Page 17

  Item 4.  Submission of Matters to a Vote
             of Security Holders                          Page 17

  Item 5.  Other Information                              Page 17

  Item 6.  Exhibits and Reports on Form 8-K               Page 17

INDEX TO EXHIBITS                                         Page 20


                         Part I - Financial Information

Item 1.  Financial Statements.

                               Electrosource, Inc.
                            Condensed Balance Sheets

<TABLE>
  <S>                               <C>                 <C>            <C>
                                                        September 30,    December 31,
                                                             1998            1997
                                                         (Unaudited)               
  ASSETS                                                                                  
                                                                                          
  CURRENT ASSETS                                                                          
    Cash and cash equivalents                            $   130,114     $  782,918
    Trade receivables                                        303,892        408,230
    Amounts due from related party (Notes E and I)           330,370             --
    Inventories                                              367,482        322,289
    Prepaid expenses and other assets                         20,172        376,757
  TOTAL CURRENT ASSETS                                     1,152,030      1,890,194
                                                                                          
  PROPERTY AND EQUIPMENT (net of accumulated                                              
  depreciation of $3,838,996 in 1998 and
  $3,239,817 in 1997)
                                                           3,659,643      4,164,459
                                                                                          
  INTANGIBLE ASSETS (net of accumulated                                                   
  amortization of $4,345,053 in 1998 and
  $3,600,213 in 1997)                                      1,116,507      1,861,347
                                                                                          
  RESTRICTED CASH                                                 --         81,604
  OTHER ASSETS                                                 6,250          8,500
  TOTAL ASSETS                                            $5,934,430     $8,006,104
                                                                                          
  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
            
  CURRENT LIABILITIES                                                                     
    Accounts payable                                     $   683,124     $  518,808
    Accrued liabilities                                    1,316,339      1,668,718
    Deferred revenue and advance payments on               1,181,768        432,599
     batteries
    Advance payments from related party                      327,075             --
    (Notes E and I)
    Current portion of capital lease obligations              75,173         72,685
  
    Convertible notes payable                                     --        871,920
  TOTAL CURRENT LIABILITIES                                3,583,479      3,564,730
                                                                                          
  CONVERTIBLE NOTES PAYABLE (less current portion)                --      2,800,554
  CAPITAL LEASE OBLIGATIONS (less current portion)            91,627        148,518
                                                                                          
  SHAREHOLDERS' EQUITY (DEFICIT)                                                          
    Common Stock, par value $1.00 per share,                                              
  authorized 50,000,000 shares; issued and
  outstanding 7,534,531 shares in 1998 and
  4,534,531 shares in 1997
                                                           7,534,531      4,534,531
    Preferred Stock, par value $1.00 per share;                                           
     authorized 10,000,000 shares, no shares
     issued or outstanding
                                                                  --             --
    Common Stock subscription receivable                    (467,663)      (467,663)
    Warrants                                                      --             --
    Paid in capital                                       51,446,508     51,146,508
    Accumulated deficit                                 (56,254,052)    (53,721,074)
                                                           2,259,324      1,492,302
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $  5,934,430   $  8,006,104
  (DEFICIT)
                                                                                          
  See notes to condensed financial statements.                                            
</TABLE>
                                                                       

                               Electrosource, Inc.
                 Condensed Statements of Operations (Unaudited)
                                        
                                        
<TABLE>
<S>                               <C>             <C>              <C>              <C>
                                      Three Months Ended               Nine Months ended
                                        September 30,                    September 30,
                                      1998             1997             1998           1997
Revenues                                                                                        
  Battery sales                    $  480,761      $  122,526       $  869,380     $    785,581
  Project revenue                     413,290         703,951          628,246        1,908,814
  Interest income                       4,636          28,274           33,209           83,780
                                      898,687         854,751        1,530,835        2,778,175
                                                                                                
Costs and expenses                                                                              
  Manufacturing                     1,076,316         955,381        2,811,005        2,629,889
  Selling, general and                399,243         634,419        1,582,010        1,860,073
   administrative
  Research and development            347,676         745,782        1,427,318        1,811,443
  Technology license and               25,000          25,000           75,000           75,000
   royalties
  Depreciation and                    432,945         471,997        1,344,018        1,427,957
   amortization
  Interest expense                      6,086         117,791          356,507          339,692
  Loss on payment of capital               --         189,316               --          189,316
   lease
                                    2,287,266       3,139,686        7,595,858        8,333,370
Loss before income taxes           (1,388,579)     (2,284,935)      (6,065,023)      (5,555,195)
  Income taxes                              0               0                0                0
                                                                                                
Loss before extraordinary gain     (1,388,579)     (2,284,935)      (6,065,023)      (5,555,195)
                                                                                                
  Extraordinary gain from                                                                       
  early extinguishment of debt
     (Note D)                              --              --        3,532,045               --
                                                                                                
Net loss                          $(1,388,579)    $(2,284,935)     $(2,532,978)     $(5,555,195)
                                                                                                
Net loss per common share         $     (0.22)    $     (0.55)     $     (0.45)     $     (1.37)
                                                                                                
Average common shares               6,209,941       4,132,804        5,657,608        4,056,612
outstanding
                                                                                                                        
See notes to condensed financial statements.
</TABLE>



                               Electrosource, Inc.
                 Condensed Statements of Cash Flows (Unaudited)

<TABLE>
    <S>                                                  <C>            <C>
                                                        Nine Months Ended September 30
                                                           1998            1997
    OPERATING ACTIVITIES                                                            
     Net loss                                           $(2,532,978)    $(5,555,195)
     Adjustments to reconcile net loss to net cash                                  
      used in operating activities:
       Equity instruments issued for consulting             300,000         164,800
        services
       Depreciation and amortization                      1,344,019       1,598,568
       Amortization of discounts on convertible notes                               
        payable
        and deferred financing costs                             --          75,650
       Non-cash interest expense                            359,571         100,000
       Amortization of prepaid lease expense                319,605              --
       Extraordinary gain from early extinguishment      (3,532,045)             --
        of debt
       Loss on payment of capital lease                          --         189,316
     Changes in operating assets and liabilities:                                   
       (Increase) in trade and related party               (226,032)       (533,981)
        receivables
       (Increase) decrease in inventories                   (45,193)         14,999
       Decrease in prepaid expenses and other assets         39,230          65,434
       Increase (decrease) in accounts payable and         (188,063)        294,863
        accrued liabilities
       Increase (decrease) in deferred revenue and        1,076,244        (306,914)
        advance payments
    CASH USED IN OPERATING ACTIVITIES                    (3,085,642)     (3,892,460)
                                                                                    
    INVESTING ACTIVITIES                                                            
      Purchases of property and equipment                   (94,363)        (68,049)
    CASH USED IN INVESTING ACTIVITIES                       (94,363)        (68,049)
                                                                                    
    FINANCING ACTIVITIES                                                            
      Proceeds from issuance of convertible notes                                   
       Payable and related warrants to purchase
       Common Stock
                                                          1,000,000       4,000,000
      Payments of notes payable and capital lease        (1,554,403)       (638,326)
       obligations
      Proceeds from issuance of common stock, net         3,000,000         599,294
      Proceeds from exercise of stock options                    --          50,160
      Decrease in restricted cash                            81,604         663,220
    CASH PROVIDED BY FINANCING ACTIVITIES                 2,527,201       4,674,348
                                                                                    
    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       (652,804)        713,839
                                                                                    
      Cash and cash equivalents at beginning of             782,918         367,861
       period
                                                                                    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD           $  130,114     $ 1,081,700
                                                                                    
                                                                                    
    See notes to condensed financial statements.                                    
</TABLE>


NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).

NOTE A - BASIS OF PRESENTATION

The  accompanying unaudited condensed financial  statements  have
been  prepared  in accordance with generally accepted  accounting
principles for interim financial information.  Accordingly,  they
do  not  include  all of the information and  notes  required  by
generally  accepted accounting principles for complete  financial
statements.   In  the  opinion  of management,  all  adjustments,
consisting of normal recurring accruals, considered necessary for
a  fair presentation have been included.  These interim financial
statements  should  be  read in conjunction  with  the  financial
statements  and  notes thereto included in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1997, and are
not necessarily indicative of results for the entire year.

Certain  reclassifications have been made to the  1997  financial
statements to conform with the 1998 presentation.


NOTE B - INVENTORIES

                                   September 30,     December 31,
                                        1998             1997
                                                                  
  Raw materials                          $229,245         $172,469
  Work in progress                         37,809           79,774
  Finished goods                          100,428           70,046
                                         $367,482         $322,289


NOTE C - PROPERTY AND EQUIPMENT

                                   September 30,     December 31,
                                        1998             1997
                                                                  
  Office equipment                    $   801,610      $   785,529
  Production and lab equipment          5,396,011        5,317,729
  Leasehold improvements                1,301,018        1,301,018
                                        7,498,639        7,404,276
  Less - accumulated depreciation                                 
         and amortization             (3,838,996)      (3,239,817)
  Total Property and Equipment         $3,659,643       $4,164,459


NOTE D - CONVERTIBLE NOTES PAYABLE

In  June  1998, in accordance with the terms of a Stock  Purchase
Agreement  ("Agreement")  with  Kamkorp  Limited  ("Kamkorp"),  a
company  organized in England, the Company executed an  agreement
with   Corning  Incorporated  ("Corning")  to  retire  the   full
$6,293,002  in outstanding Convertible Notes Payable and  accrued
interest  owed  to Corning, in exchange for $1,500,000  in  cash.
The  transaction was completed on June 16, 1998.  The Convertible
Notes  Payable  and  accrued interest had a  carrying  amount  of
$5,032,045 (after unamortized discount of $1,260,957),  resulting
in an extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction.  Basic and diluted
earnings  per  share for the extraordinary gain  from  the  early
extinguishment   of  debt  were  $0.68  and  $0.73   per   share,
respectively, for the three and six month periods ended June  30,
1998.  The $1,500,000 was provided to the Company by Kamkorp from
the  sale of 1,500,000 shares of Common Stock under the terms  of
the Agreement.  (See Note E.)

NOTE E - COMMON STOCK AND CHANGE IN CONTROL

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp,  for up to $6,000,000 of equity funding.  The  Agreement
was  structured  with the intent of providing additional  capital
combined  with  battery  orders for  use  in  electric  vehicles,
neighborhood  electric  vehicles  and  other  applications.   The
Agreement provides Kamkorp the right to purchase an aggregate  of
6,000,000 shares of the Company's Common Stock for cash at  $1.00
per  share  and  an  option to purchase an  additional  3,000,000
shares of the Company's Common Stock at $1.00 per share for  cash
or,  with the agreement of the Company, for services.  Under  the
terms of the Agreement, Kamkorp purchased 1,200,000 shares of the
Company's Common Stock at $1.00 per share at closing on  June  2,
1998.    On  June  16,  1998,  Kamkorp  purchased  an  additional
1,500,000  shares of the Company's Common Stock  for  $1,500,000.
The  proceeds from the June 16, 1998 sale were used to retire all
Convertible  Notes Payable and accrued interest owed to  Corning.
(See Note D.)  As of November 11, 1998, Kamkorp has purchased  an
additional  $600,000 of the Company's Common Stock at  $1.00  per
share.  Such payments were generally one week to four weeks  past
due.   The  Agreement  requires, subject  to  certain  conditions
precedent,  that Kamkorp purchase up to an additional  $2,700,000
of  the Company's Common Stock at $1.00 per share at a minimum of
$300,000  per  month through July 1999.  Kamkorp  management  has
stated that the remaining and future payments (more or less  than
those  defined in the Agreement) will be made in the  amount  and
timeframe  that Kamkorp and the Company agree are   necessary  to
sustain  operations  and the execution of the  approved  business
plan.  (See Note I.)

In  accordance  with  the  terms of  the  Agreement,  Kamkorp  is
entitled to a number of representatives on the Company's Board of
Directors  equal  to  at least one-third of the  members  of  the
Board.   On  June 2, 1998, Kamkorp nominated, and  the  Company's
Board appointed, three (3) directors to the Board for a total  of
eleven  (11)  directors, at that time.  Accordingly, Kamkorp  may
nominate  one additional director if it so chooses.  Kamkorp  has
the  ability to obtain greater than 50% of the outstanding Common
Shares of the Company on a fully-diluted basis under the terms of
the  Agreement  and to ultimately have control of  the  Company's
Board  of  Directors.   Additionally,  the  Company  must  obtain
express approval of Kamkorp for all important management policies
and decisions, which include the following:

          a.   the issuance of Common Stock or any security which
               provides for the right to acquire Common Stock, or  any
               other capital stock of the Company;
          b.   overall  policy  decisions relating  to  business
               direction and manufacturing capacity;
          c.   any  agreement  or  commitment  that  materially
               affects or modifies the intellectual property owned  by
               the Company;
          d.   approval of the annual operating budget,  capital
               budget,  overhead  budgets and business  plans  of  the
               Company;
          e.   approval of any merger, consolidation, partnership
               or joint venture;
          f.   approval of transfer of any assets of the Company
               with a fair market value greater than $100,000;
          g.   incurring   indebtedness  for  borrowed   money,
               granting  any material pledge or security  interest  in
               the assets of the Company;
          h.   increasing  the  size of the Company's  Board  of
               Directors;
          i.   amending    the   Company's   Certificate    of
               Incorporation or Bylaws;
          j.   entering into any transaction involving an amount
               greater  than, or having a value in excess of  $100,000
               or  involving  a term or commitment for  more  than  12
               months; and
          k.   other various management policies and decisions.

As of November 11, 1998, Kamkorp is the record owner of 3,300,000
shares  or  42%  of  the Company's 7,834,531 current  outstanding
shares  of  Common  Stock and the beneficial owner  of  9,000,000
shares  or 66.5% of the Company's Common Stock (assuming purchase
of  the  full 6,000,000 shares available under the Agreement  and
full  exercise of the option to purchase 3,000,000 shares).   The
Company granted Kamkorp demand and piggyback registration  rights
with  respect to all such shares.  Kamkorp has not yet  requested
registration.

The  Company  received  a non-cancelable  purchase  order  and  a
$507,500 down payment for 5,800 batteries for delivery during the
second  half  of 1998.  The purchase order was from Electrosource
International  Limited  ("EIL"),  a  newly  formed   distribution
company currently 100% owned by Kamkorp.  The ownership structure
is  ultimately expected to be 60% owned by Kamkorp and 40% by the
Company.  The payment and documentation for the transfer  of  EIL
shares to Electrosource has not been completed.  Accordingly,  no
activity  related  to  EIL has been reflected  in  the  Company's
financial  statements  at  September 30,  1998.   EIL,  in  turn,
received  a  purchase order for 5,800 batteries  from  Perusahaan
Otomobil Elektrik (Malaysia) ("POEM"), a Malaysian joint  venture
company  in  which  Kamkorp affiliates hold a minority  interest,
engaged   in  the  production  of  electric  vehicles.    Kamkorp
management  has  indicated that vehicle sales to date  have  been
less  than  anticipated  due  to  slower  than  expected  vehicle
production  and some delays in customs, which are  now  resolved.
Kamkorp  management has stated that they believe these production
problems  are being corrected and no long-term impact to  vehicle
sales is expected. As a result, it is anticipated that deliveries
to  EIL  under the 5,800 battery order will extend into at  least
the   first   quarter  of  1999.   Additionally,   the   economic
environment  throughout  Asia is uncertain  and  could  adversely
affect  sales  of electric vehicles by POEM.  Kamkorp  management
has  stated their belief that sales in Asia will continue to grow
in  addition to non-Asian sales of vehicles.  The Company has not
obtained  independent information regarding such sales  prospects
and   there  is no assurance that the sales will grow as  Kamkorp
anticipates.   The  possibility of additional orders  beyond  the
5,800  batteries is tied to the sale of vehicles  throughout  the
world.   The  parties anticipate that Kamkorp and its  affiliates
may  place additional orders for delivery in 1999, however, there
is  no guarantee or assurance that any additional batteries  will
be ordered by, or delivered to, Kamkorp or its affiliates.

Since September 1998, payments made by Kamkorp under the terms of
the   Agreement   have  not  been  made  on  their   due   dates.
Additionally, EIL has not made payments due under  the  terms  of
the  5,800  battery purchase order, other than the $507,500  down
payment. (See Note I - Liquidity.)


NOTE F - CONTINGENCIES

In  1994  the Company signed a "Know-How License Agreement"  (the
"Agreement") with Horizon Battery Technologies, Ltd. ("HBTL"), of
Bombay,  India,  calling for the completion of  several  detailed
subordinate  agreements with the ultimate purpose to license  the
manufacture and sale of batteries in India.  The effectiveness of
the  Agreement was conditioned upon the subsequent  execution  of
these  six related agreements, none of which were executed.   The
Company believes, therefore, the Agreement never became effective
and  has no force or effect.  Separately in 1995, HBTL agreed  to
pay  the Company $250,000 for a Preliminary Design Review ("PDR")
for  a  potential  manufacturing facility  in  India,  which  was
required  to  complete  one of the subordinate  agreements.   The
Company  received  $100,000 from HBTL and completed  the  PDR  in
1995.  The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.

In  September  1996 the Company received a demand  from  HBTL  to
arbitrate  damage  claims for alleged breach  of  the  Agreement.
HBTL claimed damages of approximately $5,100,000 for its expenses
and  lost profits related to the Agreement.  The Company disputes
the claim for damages and will vigorously defend any action taken
by  HBTL to pursue the claims.  The Company also filed a petition
in  State  Court  in Travis County, Texas, seeking,  among  other
things,  a  declaratory  judgment  that  HBTL  had  no  right  to
arbitration or monetary relief.  HBTL contested jurisdiction  and
removed  the proceedings to the U.S. Federal Courts.  The Federal
District   Court  then  ruled  that  it  did  not  have  personal
jurisdiction  over HBTL and therefore had no power  to  hear  the
case.   The  Company  filed an appeal in the U.S.  Fifth  Circuit
Court  of  Appeals  from the final judgment and  rulings  in  the
District  Court,  which denied jurisdiction.  A decision  on  the
appeal is expected at any time.  If the appeal is successful, the
U.S.  Federal Court will have jurisdiction to hear the case.   No
liability  has  been  recorded  in the  financial  statements  at
September 30, 1998, for this uncertainty, as management is unable
to  determine  the likelihood of an unfavorable outcome  of  this
matter  or  to  estimate the amount or range  of  potential  loss
should the outcome be unfavorable.  The resolution of this matter
could have a material adverse effect on the financial position of
the Company.

The  Company received notice on June 8, 1998, from SMH Automobile
("SMH")  of  termination of the development contract between  the
Company  and SMH.  The stated reason for termination was problems
with  the Company meeting contractual requirements.  The  Company
subsequently  requested $163,000 from SMH for costs  incurred  by
the  Company in good faith prior to the notice of termination for
the development of a battery for SMH in accordance with the terms
of  the  development contract.  On August 18, 1998,  the  Company
received a request from SMH for the payment of $210,900 for costs
incurred  by  SMH  due  to  the  Company's  inability   to   meet
contractual  requirements.  Management of  the  Company  has  had
several   discussions  with  SMH  management   related   to   the
termination of the contract.  The termination is not expected  to
have  an  impact  on  the financial statements  of  the  Company.
Accordingly,  no  liability has been recorded  in  the  financial
statements at September 30, 1998, for this uncertainty.  However,
if a favorable settlement cannot be reached with SMH, this matter
could have a material adverse effect on the financial position of
the Company.


NOTE G - EARNINGS PER SHARE

Basic  and diluted loss per share is based on the average  number
of  shares of common stock outstanding during each period.  Since
the  Company  has  experienced net operating losses  (before  the
effect  of extraordinary items), outstanding options and warrants
and contingently issuable shares to purchase common stock have an
antidilutive  effect.  Therefore, such options and  warrants  and
contingently  issuable shares were not included  in  the  diluted
loss per share calculation.


NOTE H - COMPREHENSIVE INCOME

In 1997 the Financial Accounting Standards Board issued Statement
130,  Reporting  Comprehensive Income  ("SFAS  130").   SFAS  130
establishes   new  rules  for  the  reporting  and   display   of
comprehensive  income and its components.   The  Company  adopted
SFAS  130  effective  January 1, 1998,  but  does  not  have  any
comprehensive income as defined in SFAS 130.


NOTE I - LIQUIDITY

The  Company continues to operate at a cash deficit.  In  January
and  February 1998 the Company borrowed the remaining  $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997.  Existing battery
orders and contract work were not adequate to sustain the Company
on  an  ongoing basis.  As a result, in February 1998 the Company
reduced  its  staffing by approximately 40% to reduce  costs  and
began  to  explore  strategic alternatives  such  as  a  business
combination,  the  sale of substantially  all  of  the  Company's
assets or a strategic alliance.

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp  for up to $6,000,000 of equity funding.  As of  November
11, 1998, Kamkorp has purchased 3,300,000 shares of the Company's
Common Stock.  The Agreement requires that Kamkorp purchase up to
an additional 2,700,000 shares of Common Stock at $1.00 per share
at  a minimum rate of 300,000 shares per month through July 1999.
(See  Note  E.)  Kamkorp's obligation to make these purchases  is
dependent  upon  the  absence  of  any  material  change  in  the
financial position, business or prospects of the Company and upon
certain  other  conditions precedent,  such  as  the  absence  of
litigation,   absence   of  defaults  on  other   contracts   and
agreements,  and  compliance with environmental regulations.  The
Company  believes that it is currently in compliance  with  these
conditions.

The  required  monthly  payments of $300,000  for  September  and
October  1998  for  the purchase of shares  of  Common  Stock  in
accordance  with  the  terms  of the Agreement  have  been  made,
although  the  payments  were delayed beyond  the  due  dates  an
average  of  two to three weeks.  Kamkorp management  has  stated
such  payments were delayed because Kamkorp and the Company  have
been discussing and reviewing operational performance and current
and  future plans.  Kamkorp management has stated that they  will
continue  payments during the business review, the completion  of
which   is   anticipated  by  mid-December.    Further,   Kamkorp
management has stated that the remaining and future payments will
be  made in the amount and timeframe that Kamkorp and the Company
agree  are  necessary to sustain operations and the execution  of
the  approved  business plan.  Accordingly, Kamkorp  has  made  a
small  payment  at the request of Electrosource  as  the  initial
portion  of  the November 1998 payment, and has stated  that  the
balance of the November 1998 payment will be paid as required  by
the  Company's operating cash needs.  While Kamkorp has  provided
substantial  amounts of financing to the Company to  date,  as  a
private company Kamkorp is not legally required to, and has  not,
provided  information  to  the Company sufficient  to  allow  the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.

The  Company received a non-cancelable purchase order  for  5,800
batteries  for  delivery during the second half of  1998  from  a
Kamkorp affiliate ("EIL").  During July 1998 the Company received
$507,500 as a down payment in accordance with the terms  of  this
purchase  order.  The terms of the purchase order state that  the
down  payment is to be applied on a pro-rata basis to  the  5,800
batteries  with  the  remaining amounts due  30  days  after  the
shipment of batteries.   As of November 11, 1998, 2,062 batteries
have  been  delivered.  Additionally, Electrosource has  incurred
certain payroll, travel and freight costs on behalf of EIL  which
EIL  management has orally agreed to pay.  As  of  November  11,
1998, the balance owed to Electrosource by EIL for batteries  and
other  costs is $359,167, nearly one-half of which is  more  than
sixty  days  past due.  As of September 30, 1998, the balance  of
such  costs was $330,370.  It is management's understanding based
on  discussions with Kamkorp and EIL management that the delay in
payment  is due to a clarification over the settlement of freight
charges,  which  has  now  been resolved.  No  reserve  has  been
reflected  in the financial statements related to the uncertainty
of  this  receivable  from EIL as advance payments  from  EIL  of
approximately the same amount currently exist.

Management  anticipates that deliveries to EIL  under  the  5,800
battery order will extend into at least the first quarter of 1999
because vehicle sales to date have been less than anticipated. It
is   anticipated  that  Kamkorp  and  its  affiliates  may  place
additional  orders  for delivery in 1999, however,  there  is  no
guarantee  or  assurance that any additional  batteries  will  be
ordered   by,   or  delivered  to,  Kamkorp  or  its  affiliates.
Additionally,  the  economic   environment  throughout  Asia   is
uncertain  and  could  adversely affect the anticipated  sale  of
electric vehicles by POEM.

Cash  balances  have been depleted and the Company  is  currently
dependent  on  cash payments from Kamkorp and its  affiliates  to
continue operations on a day-to-day basis.   Cash generated  from
battery  sales  and  contracts  with  other  customers   is   not
sufficient  to fund operations.  Cash payments from  Kamkorp  and
its affiliates have not been made in a timely fashion to date and
there  is no assurance that future payments from Kamkorp  or  its
affiliates,  if  any, will be made in a timeframe  sufficient  to
sustain   operations.    Additionally,  the  anticipated  minimum
$300,000  funding per month in accordance with the terms  of  the
Agreement,  will  not,  by  itself,  be  sufficient  to  continue
operations at current levels.  Funding beyond $300,000 per month,
additional  battery orders, or other financing will  be  required
before  the end of 1998 to continue operations at current levels.
The  Company  is  discussing the possibility  of  accelerated  or
additional  financing from Kamkorp which could be provided  under
the  terms of the Agreement, including Kamkorp's exercise of  its
option to purchase 3,000,000 shares of the Company's Common Stock
at  $1.00  per share. Absent additional funding from  Kamkorp  or
other  sources, the Company will not have the funds necessary  to
complete   battery  orders  from  Kamkorp  affiliates  or   other
customers, or to pay all outstanding obligations and will not  be
able to continue as a going concern.

The  Company's  Common  Stock is traded in  the  Over-the-Counter
Market  and  is reported on the Nasdaq Stock Markets  ("Nasdaq").
In  order  to maintain listing by Nasdaq under rules  which  went
into effect in February 1998, the Company must maintain a minimum
$2,000,000  of  net  tangible  assets  (total  assets,  excluding
goodwill,  minus  total liabilities).  The  Company  was  not  in
compliance  with  the requirement before the  completion  of  the
financing transactions and debt extinguishment completed in  June
1998.  In April 1998 the Company received notice from Nasdaq that
it  must present a plan for compliance with listing standards  on
or  before April 16, 1998.  The Company submitted such a plan  on
April  15,  1998.  On May 13, 1998, the Company was  notified  by
Nasdaq  that  its plan was not accepted and it would be  delisted
from Nasdaq effective the close of business on May 20, 1998.  The
Company  filed  a  request  for an  oral  hearing  regarding  the
decision.   The hearing was held on June 18, 1998.   On  July  1,
1998,  the Company received written notice from Nasdaq  that  its
shares  would  continue  to be listed on  the  Nasdaq  Small  Cap
Market,  as  the Company regained compliance with  the  financial
listing  criteria  and provided a plan for continued  compliance.
The  success  of  this  plan is contingent  upon  equity  funding
anticipated  to  be  provided by Kamkorp in accordance  with  the
terms  of the Agreement and successful execution of the Company's
business  plan  which  includes increased  revenues  and  reduced
operating  losses  and/or  additional equity  funding.   If  such
funding  is  not  provided (by Kamkorp  or  other  parties),  the
Company  will not be able to maintain the required $2,000,000  of
net  tangible  assets.   If the Company  does  not  maintain  the
required listing criteria, it is likely that the Company's shares
would  be  delisted from the Nasdaq Small Cap Market  at  a  time
specified by Nasdaq, in which event the shares would be quoted on
the  Over-the-Counter  ("OTC") Bulletin  Board  and/or  the  Pink
Sheets of the National Quotation Bureau ("NQB").  In such trading
markets, brokers and dealers effecting trades in the Common Stock
would  become  subject to the Securities and Exchange  Commission
rules  covering trading in "penny stocks."  Becoming  subject  to
the  "penny  stock"  rules would likely have a  material  adverse
effect  on  both the price and trading liquidity of the Company's
Common Stock.

If  the  Company is delisted from Nasdaq it would likely be  more
difficult  to  obtain  additional  funding.   There  can  be   no
assurance  that additional funding which will generate sufficient
cash to sustain operations can be obtained on terms acceptable to
the  Company, if at all.  The financial statements do not include
any  adjustments to reflect the possible future  effects  on  the
recoverability  and classification of assets or the  amounts  and
classification of liabilities that may result from  the  possible
inability of the Company to continue as a going concern.



Item 2.    Management's  Discussion  and  Analysis  of  Financial
     Condition and Results of Operations (Unaudited)

Results of Operations:

Revenues.

The  Company had battery sales of  $481,000 and $869,000 for  the
three  and  nine months ended September 30, 1998, as compared  to
$123,000  and  $786,000  for  the three  and  nine  months  ended
September  30,  1997.  Approximately 27% and 65% of  the  battery
sales  for  the nine months ended September 30, 1998,  and  1997,
respectively,  were to Chrysler Corporation ("Chrysler").   These
purchases were for testing and evaluation of the Horizon  battery
in  the  EPIC  Minivan  program.  Chrysler  placed  a  $1,400,000
purchase  order  with the Company in February  1998  for  further
testing and evaluation of the batteries.  The purchase order  was
amended  in  September 1998, reducing the total to  approximately
$1,100,000.  Approximately $700,000 was received in February 1998
and  the  remaining  $400,000 in September 1998,  in  advance  of
battery  shipments; approximately $1,000,000  of  which  remained
deferred at September 30, 1998.  The Company and Chrysler are  in
discussions  regarding the timing and amount  of  future  battery
shipments  to  Chrysler in accordance with  the  terms  of   this
purchase  order.   The timing and amount of  such  shipments  are
uncertain.  The Company does not expect additional cash or orders
from Chrysler in the near term.

The  remainder  of  battery sales in 1998 were  to  Electrosource
International  Limited ("EIL"), Lockheed Martin  and  Micro-Vett.
Approximately 72% and 42% of battery sales for the three and nine
months   ended   September  30,  1998,  respectively,   were   to
Electrosource  International Limited ("EIL").   EIL  is  a  newly
formed  distribution company expected to be owned 60% by  Kamkorp
Limited  ("Kamkorp") and 40% by the Company.  (EIL  is  currently
100% owned by Kamkorp.  The payment and documentation of the sale
of    EIL   shares  to  Electrosource  has  not  been  completed.
Accordingly,  no  amounts  related to EIL's  activity  have  been
reflected in the Company's financial statements at September  30,
1998.)   EIL placed a non-cancelable order for 5,800 batteries to
be delivered in the second half of 1998 with the Company.  A down
payment  of $507,500 on the order was received in July.  EIL,  in
turn,  received  a  purchase  order  for  5,800  batteries   from
Perusahaan  Otomobil  Elektrik (Malaysia) ("POEM"),  a  Malaysian
joint venture company in which Kamkorp affiliates hold a minority
interest,  for  production of electric  vehicles.   POEM  used  a
portion  of the batteries delivered to date in electric  vehicles
it produced and supplied to shuttle athletes and officials at the
Commonwealth  Games held in Kuala Lumpur, Malaysia  in  September
1998.   The  batteries  performed very well at  the  Commonwealth
Games.   However, sales of vehicles to date by POEM  in  Malaysia
have  been  less  than  anticipated due to slower  than  expected
vehicle  production  and some delays in customs,  which  are  now
resolved.  Kamkorp management has stated that they believe  these
production  problems are being corrected and no long-term  impact
to  vehicle sales is expected.  As a result, management  believes
that  deliveries under the 5,800 order will extend into at  least
the  first  quarter  of 1999.  The status  of  future  orders  is
uncertain  and  there  is  no guarantee  or  assurance  that  any
batteries beyond the 5,800 initial order will be ordered  by,  or
delivered to Kamkorp or its affiliates.  (See also Liquidity  and
Capital Resources section below.)

Sales of batteries to Lockheed Martin are expected to increase in
1999.   Lockheed  Martin produces a drive train  used  in  hybrid
buses manufactured by the Orion Bus Company and others.  The  New
York  Transit Authority is currently testing a hybrid diesel  bus
on  the streets of New York City manufactured by Orion, which  is
powered  by  a  Lockheed  Martin drive  train  and  Electrosource
batteries.   The test is expected to conclude in late  1998.   If
the  results  of such tests are favorable, the New  York  Transit
Authority  may  place an order for the hybrid  buses  powered  by
Electrosource  Horizon batteries in the first  quarter  of  1999.
However, the amount and timing of such orders remains uncertain.

Management  expects  to  receive Federal Aviation  Administration
("FAA")  certification of batteries for helicopter  and  aircraft
starting  applications in late 1998 and early 1999, respectively,
at  which time sales of these batteries are expected to commence.
However, the amount and timing of these sales remains uncertain.

The  Company  had project revenue of approximately  $413,000  and
$628,000 for the three and nine months ended September 30,  1998,
as  compared  to $704,000 and $1,909,000 for the three  and  nine
months  ended  September  30,  1997.   $215,000  of  the  revenue
generated in the three month period ended September 30, 1998  was
from  the  final  resolution and settlement of a program  with  a
customer  which remains confidential.  Battery orders  from  this
customer  are  not  expected  in the  near  future,  if  at  all.
Essentially  all of the remaining revenue generated in  1998  was
from  cooperative  development and research agreements  with  the
Defense Advanced Research  Projects Agency ("DARPA") for HEV  and
EV  applications.  Development work continues on  the  Fiat  Auto
program  ("Fiat"),  however no specific payment  milestones  were
achieved during 1998 to permit the recognition of revenue on this
program.  This development program is expected to be completed by
the  end  of  1998.   Future  orders remain  uncertain.   Project
revenue for 1998 is expected to be well below 1997 levels.

Costs and Expenses.

Generally,  total costs were lower in the three  and  nine  month
periods ended September 30, 1998 compared to the same periods  in
1997  primarily  due  to labor reductions  in  the  research  and
development  and selling, general and administrative departments.
Additionally, interest expense significantly decreased  beginning
in  June  1998  with  the Company's payment  of  its  outstanding
obligations  to  Corning.   The  labor  reductions  occurred   in
February  1998  and voluntary payroll reductions  were  taken  by
executive  management beginning in early 1998.  Average headcount
in 1998 is lower than in 1997 because of these labor reductions.

Manufacturing costs have remained high as a percentage of battery
sales,  primarily due to the lack of capital required to  further
automate  the production processes, materials being purchased  in
low   volumes  and  the  fixed  facility  cost  of  leasing   and
maintaining  the  88,000  square foot  manufacturing  and  office
facility.   As a result, manufacturing costs have not  fluctuated
significantly   from   relatively  small   changes   in   volume.
Management  expects that manufacturing costs can  decrease  as  a
percentage of battery sales if volume production begins, however,
additional  capital  will be required for  manufacturing  tooling
required  for  the  large-scale production of  prototype  battery
models  in  order  to achieve manufacturing efficiencies  and  to
lower  raw  material  costs.  The timing and  amount  of  battery
orders  remains uncertain and the sources of capital which  would
be  required for the related tooling for such orders may  not  be
available to the Company.

Selling, general and administrative costs are lower for the three
and  nine month periods ended September 30, 1998 compared to  the
same  periods  in  1997 primarily due to labor  reductions  which
occurred in February 1998 and voluntarily salary reductions taken
by  executive  management in early 1998.   As  a  result  of  the
reduction  in  personnel, travel costs were also  lower  in  1998
compared to the same period in 1997.

Development work and related costs has decreased in the three and
nine month periods ended September 30, 1998, compared to the same
period in 1997, which correlates with the decrease in revenue for
the  periods.   The amount of development work and related  costs
have  not  decreased  proportionately with revenue  as  a  larger
proportion  of  development  work  and  related  costs  has  been
incurred in 1998 on programs which are not generating revenue and
on   cost-share  programs  which  generate  less   revenue   than
commercial programs.  The Company has incurred more costs in 1998
on  testing and evaluation of batteries (aircraft, helicopter and
lawnmower   applications)  and  improvements   in   manufacturing
processes  and  joint  research  and  development  efforts   with
Corning.    Research   and  development  costs   decreased   upon
completion  of  the joint research and development  efforts  with
Corning, which were completed in May 1998.

Interest  costs relate primarily to the Company's  previous  debt
obligations  to  Corning and have greatly decreased  due  to  the
Company's retirement of its obligations to Corning in June  1998.
During  1997 and early 1998 the Company issued Convertible  Notes
Payable to Corning with a principal balance of $6,202,500 at face
interest  rates of 5%.  The Company was also amortizing discounts
on  the Convertible Notes Payable.  In June 1998 the Company paid
Corning  $1,500,000 in cash in full settlement of its outstanding
obligations  to  Corning.  An extraordinary  gain  on  the  early
extinguishment of debt of approximately $3,500,000  was  realized
from  this  transaction.  (See Note D to  the  interim  financial
statements.)

The  Company  has  completed  an assessment  of  its  information
technology  systems' readiness for the Year  2000  and  currently
believes  that the modifications necessary for the Year 2000  are
not  significant.   This  is  because the  Company's  information
systems  are  not complex and have been purchased/installed  over
the  last  few years and the Company believes that  most  of  the
related  software is Year 2000 compliant or Year  2000  compliant
replacements  are readily available.  The Company  also  believes
embedded  software in its manufacturing production  equipment  is
either not year sensitive or was developed considering the impact
of  the  Year 2000 issues.  The Company began testing its systems
for  the Year 2000 readiness in 1998 and the project is estimated
to  be complete in late 1999, prior to any estimated impact.  The
Company  does not expect the costs of this project to be material
or for it to have a significant effect on operations and believes
that  with modifications to existing software and conversions  to
new  software,  the  Year 2000 issue will  not  pose  significant
operational problems.

The  costs  of  the  project and the date on  which  the  Company
believes  it will complete the Year 2000 modifications are  based
on  management's  best  estimates, which were  derived  utilizing
numerous  assumptions of future events, including  the  continued
availability  of  certain resources and other factors.   However,
there  can be no guarantee that these estimates will be  achieved
and   actual   results   could  differ  materially   from   those
anticipated.   Specific factors that might  cause  such  material
differences include, but are not limited to, the availability and
cost  of personnel trained in this area and the ability to locate
and   correct   all   relevant   computer   codes   and   similar
uncertainties.

Liquidity and Capital Resources.

The  Company continues to operate at a cash deficit.  In  January
and  February 1998 the Company borrowed the remaining  $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997.  Existing battery
orders and contract work were not adequate to sustain the Company
on  an  ongoing basis.  As a result, in February 1998 the Company
reduced  its  staffing by approximately 40% to reduce  costs  and
began  to  explore  strategic alternatives  such  as  a  business
combination,  the  sale of substantially  all  of  the  Company's
assets or a strategic alliance.

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp  for up to $6,000,000 of equity funding.  As of  November
11, 1998, Kamkorp has purchased 3,300,000 shares of the Company's
Common Stock.  The Agreement requires that Kamkorp purchase up to
an additional 2,700,000 shares of Common Stock at $1.00 per share
at  a minimum rate of 300,000 shares per month through July 1999.
(See  Note  E.)  Kamkorp's obligation to make these purchases  is
dependent  upon  the  absence  of  any  material  change  in  the
financial position, business or prospects of the Company and upon
certain  other  conditions precedent,  such  as  the  absence  of
litigation,   absence   of  defaults  on  other   contracts   and
agreements,  and  compliance with environmental regulations.  The
Company  believes that it is currently in compliance  with  these
conditions.

The  required  monthly  payments of $300,000  for  September  and
October  1998  for  the purchase of shares  of  Common  Stock  in
accordance  with  the  terms  of the Agreement  have  been  made,
although  the  payments  were delayed beyond  the  due  dates  an
average  of  two to three weeks.  Kamkorp management  has  stated
such  payments were delayed because Kamkorp and the Company  have
been discussing and reviewing operational performance and current
and  future plans.  Kamkorp management has stated that they  will
continue  payments during the business review, the completion  of
which   is   anticipated  by  mid-December.    Further,   Kamkorp
management has stated that the remaining and future payments will
be  made in the amount and timeframe that Kamkorp and the Company
agree  are  necessary to sustain operations and the execution  of
the  approved  business plan.  Accordingly, Kamkorp  has  made  a
small  payment  at the request of Electrosource  as  the  initial
portion  of  the November 1998 payment, and has stated  that  the
balance of the November 1998 payment will be paid as required  by
the  Company's operating cash needs.  While Kamkorp has  provided
substantial  amounts of financing to the Company to  date,  as  a
private company Kamkorp is not legally required to, and has  not,
provided  information  to  the Company sufficient  to  allow  the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.

The  Company received a non-cancelable purchase order  for  5,800
batteries  for  delivery during the second half of  1998  from  a
Kamkorp affiliate ("EIL").  During July 1998 the Company received
$507,500 as a down payment in accordance with the terms  of  this
purchase  order.  The terms of the purchase order state that  the
down  payment is to be applied on a pro-rata basis to  the  5,800
batteries  with  the  remaining amounts due  30  days  after  the
shipment of batteries.   As of November 11, 1998, 2,062 batteries
have  been  delivered.  Additionally, Electrosource has  incurred
certain payroll, travel and freight costs on behalf of EIL  which
EIL  management  has orally agreed to pay.  As  of  November  11,
1998, the balance owed to Electrosource by EIL for batteries  and
other  costs is $359,167, nearly one-half of which is  more  than
sixty  days  past due.  As of September 30, 1998, the balance  of
such  costs was $330,370.  It is management's understanding based
on  discussions with Kamkorp and EIL management that the delay in
payment  is due to a clarification over the settlement of freight
charges,  which  has now been resolved.    No  reserve  has  been
reflected  in the financial statements related to the uncertainty
of  this  receivable  from EIL as advance payments  from  EIL  of
approximately the same amount currently exist.

Management  anticipates that deliveries to EIL  under  the  5,800
battery order will extend into at least the first quarter of 1999
because vehicle sales to date have been less than anticipated. It
is   anticipated  that  Kamkorp  and  its  affiliates  may  place
additional  orders  for delivery in 1999, however,  there  is  no
guarantee  or  assurance that any additional  batteries  will  be
ordered   by,   or  delivered  to,  Kamkorp  or  its  affiliates.
Additionally,  the  economic   environment  throughout  Asia   is
uncertain  and  could  adversely affect the anticipated  sale  of
electric vehicles by POEM.

Cash  balances  have been depleted and the Company  is  currently
dependent  on  cash payments from Kamkorp and its  affiliates  to
continue operations on a day-to-day basis.   Cash generated  from
battery  sales  and  contracts  with  other  customers   is   not
sufficient  to fund operations.  Cash payments from  Kamkorp  and
its affiliates have not been made in a timely fashion to date and
there  is no assurance that future payments from Kamkorp  or  its
affiliates,  if  any, will be made in a timeframe  sufficient  to
sustain   operations.    Additionally,  the  anticipated  minimum
$300,000  funding per month in accordance with the terms  of  the
Agreement,  will  not,  by  itself,  be  sufficient  to  continue
operations at current levels.  Funding beyond $300,000 per month,
additional  battery orders, or other financing will  be  required
before  the end of 1998 to continue operations at current levels.
The  Company  is  discussing the possibility  of  accelerated  or
additional  financing from Kamkorp which could be provided  under
the  terms of the Agreement, including Kamkorp's exercise of  its
option to purchase 3,000,000 shares of the Company's Common Stock
at  $1.00  per share.  Absent additional funding from Kamkorp  or
other  sources, the Company will not have the funds necessary  to
complete   battery  orders  from  Kamkorp  affiliates  or   other
customers, or to pay all outstanding obligations and will not  be
able to continue as a going concern.

The  Company's  Common  Stock is traded in  the  Over-the-Counter
Market  and  is reported on the Nasdaq Stock Markets  ("Nasdaq").
In  order  to maintain listing by Nasdaq under rules  which  went
into effect in February 1998, the Company must maintain a minimum
$2,000,000  of  net  tangible  assets  (total  assets,  excluding
goodwill,  minus  total liabilities).  The  Company  was  not  in
compliance  with  the requirement before the  completion  of  the
financing transactions and debt extinguishment completed in  June
1998.  In April 1998 the Company received notice from Nasdaq that
it  must present a plan for compliance with listing standards  on
or  before April 16, 1998.  The Company submitted such a plan  on
April  15,  1998.  On May 13, 1998, the Company was  notified  by
Nasdaq  that  its plan was not accepted and it would be  delisted
from Nasdaq effective the close of business on May 20, 1998.  The
Company  filed  a  request  for an  oral  hearing  regarding  the
decision.   The hearing was held on June 18, 1998.   On  July  1,
1998,  the Company received written notice from Nasdaq  that  its
shares  would  continue  to be listed on  the  Nasdaq  Small  Cap
Market,  as  the Company regained compliance with  the  financial
listing  criteria  and provided a plan for continued  compliance.
The  success  of  this  plan is contingent  upon  equity  funding
anticipated  to  be  provided by Kamkorp in accordance  with  the
terms  of the Agreement and successful execution of the Company's
business  plan  which  includes increased  revenues  and  reduced
operating  losses  and/or  additional equity  funding.   If  such
funding  is  not  provided (by Kamkorp  or  other  parties),  the
Company  will not be able to maintain the required $2,000,000  of
net  tangible  assets.   If the Company  does  not  maintain  the
required listing criteria, it is likely that the Company's shares
would  be  delisted from the Nasdaq Small Cap Market  at  a  time
specified by Nasdaq, in which event the shares would be quoted on
the  Over-the-Counter  ("OTC") Bulletin  Board  and/or  the  Pink
Sheets of the National Quotation Bureau ("NQB").  In such trading
markets, brokers and dealers effecting trades in the Common Stock
would  become  subject to the Securities and Exchange  Commission
rules  covering trading in "penny stocks."  Becoming  subject  to
the  "penny  stock"  rules would likely have a  material  adverse
effect  on  both the price and trading liquidity of the Company's
Common Stock.

If  the  Company is delisted from Nasdaq it would likely be  more
difficult  to  obtain  additional  funding.   There  can  be   no
assurance  that additional funding which will generate sufficient
cash to sustain operations can be obtained on terms acceptable to
the  Company, if at all.  The financial statements do not include
any  adjustments to reflect the possible future  effects  on  the
recoverability  and classification of assets or the  amounts  and
classification of liabilities that may result from  the  possible
inability of the Company to continue as a going concern.

In  December  1997  the Company issued 299,304 shares  of  Common
Stock  to  BDM  (now  part of TRW) as partial  payment  for  past
obligations  owed to BDM for occupancy related costs  (which  the
Company has accrued) and as prepayment under operating leases for
manufacturing equipment which are guaranteed by BDM.  The  number
of shares issued was determined based on the fair market value of
the  shares at the date of the agreement ($2.56 per share).  When
the  shares are sold by BDM, the proceeds will be used to satisfy
these past and future obligations.  If the proceeds from the sale
of such shares are not sufficient to satisfy the obligations, the
Company will issue additional shares of Common Stock or pay  cash
to  BDM  to  make  up the deficiency.  BDM has agreed  to  reduce
amounts  owed  to it by at least $1.00 per share or $299,304  for
the shares issued.  BDM will retain any overage from the sale  of
such shares in excess of the amounts owed. The Company agreed  to
pay  $300,000  cash  to BDM (for the remaining  unpaid  occupancy
related  costs)  from the proceeds received from any  fundraising
activities  completed by the Company before March  31,  1998,  in
excess of $5,000,000, which did not occur.  The balance is to  be
paid  in  shares of Common Stock, which the Company has  not  yet
issued.  The Company and BDM have agreed to postpone issuance  of
the shares in order to discuss other arrangements.  The Company's
closing market price as reported by Nasdaq on November 11,  1998,
was  $1.44  per  share.  BDM has not notified the Company  of  an
intent to sell such shares in the near term; however, unless  the
value  of  the Company's Common Stock improves, based on  current
market prices of the Company's Common Stock, additional shares of
Common Stock or cash will be required to settle these obligations
under the terms of this agreement.

Significant capital expenditures will be required in  the  future
to  further  automate and achieve consistency in  the  production
process  if  significant  orders  are  received;  however,   such
expenditures are not expected to be significant in 1998 or  early
1999 to satisfy current battery orders.  The funding required for
such potential expansion has not been identified.  There were  no
significant capital commitments at September 30, 1998.

The Company is a party to certain litigation that, if resolved in
a  manner  adverse to the Company, could have a material  adverse
effect  on  the Company's liquidity and capital resources.   (See
Note F to the interim financial statements.)

From  time  to  time,  the  Company may  publish  forward-looking
statements  relating  to  such matters as  anticipated  financial
performance,  business prospects, technological development,  new
products,   research  and  development  activities  and   similar
matters.   The Private Securities Litigation Reform Act  of  1995
provides a safe harbor for forward-looking statements.  In  order
to  comply  with the terms of the safe harbor, the Company  notes
that  a  variety  of  factors could cause  the  Company's  actual
results  and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking  statements.   When used in this  discussion,  the  words
"expects," "believes," "anticipates" and similar expressions  are
intended to identify forward-looking statements.  Such statements
are  subject to certain risks and uncertainties which could cause
actual  results  to differ materially from those projected.   The
risks   and   uncertainties  that  may  affect  the   operations,
performance,  development and results of the  Company's  business
primarily   include  completion  of  existing   battery   orders,
uncertainty  as  to  receipt of additional orders,  inability  to
obtain additional debt or equity financing, continued willingness
and  ability of Kamkorp and its affiliates to provide agreed-upon
financing, currency controls and other uncertainties arising from
Malaysia  and  Far  East  economies upon  which  the  Company  is
dependent  for equity financing and battery sales,  delisting  of
the   Company's  Common  Stock  on  Nasdaq,  termination  of  the
Company's  facility lease, delays in shipment or cancellation  of
orders,   timing   of  future  orders,  customer  reorganization,
fluctuations  in  demand primarily associated  with  governmental
mandates  for  the production of zero emission vehicles  and  the
ability   to  successfully  commercialize  the  Horizon  battery.
Readers  are  cautioned  not to place  undue  reliance  on  these
forward-looking  statements which  speak  only  as  of  the  date
hereof.   The  Company  undertakes  no  obligation  to  republish
revised   forward-looking  statements  to   reflect   events   or
circumstances after the date hereof or to reflect the  occurrence
of  unanticipated  events.  Readers are also urged  to  carefully
review  and consider the various disclosures made by the  Company
which  attempt to advise interested parties of the factors  which
affect the Company's business in this report and in the Company's
periodic  reports on Forms 10-K and 8-K filed with the Securities
and Exchange Commission.


                   Part II - Other Information
                                
                                
Item 1.   Legal Proceedings

     None.

Item 2.   Changes in Securities

     None.

Item 3.   Defaults on Senior Securities

     None.

Item 4.   Submission of Matters to a Vote of Security Holders

     None.

Item 5.   Other Information

     On  November  3, 1998, Mr. Richard Williamson submitted  his
     resignation  to  the  Board of Directors  stating  that  his
     current   workload   was  impacting  his   availability   to
     participate in the functions required of a Director for  the
     Company.   On  November 10, 1998, it was resolved  that  the
     Board  would  consist  of ten (10)  members.   Future  Board
     members  will be considered if and when presented, and  will
     be appointed, if deemed appropriate by the Board.  No one is
     being considered as a new candidate at this time.

Item 6.   Exhibits and Reports on Form 8-K

     (a)  Exhibits.

        10.1   Severance  Agreement between James  M.  Rosel  and
               Electrosource, Inc. effective August 31, 1998.
               
        10.2   Amendment  Number  One to Stock  Purchase  Warrant
               dated  August  18, 1998, issued under Subscription
               Agreements between participants and Electrosource,
               Inc. dated January 23, 1997.
               
        27.    Financial Data Schedule.


     (b)  Reports on Form 8-K.

          Reports  on  Form  8-K filed during the  quarter  ended
          September 30, 1998 and up to the date of this filing on
          Form 10-Q were:

               None.



                           SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act
of  1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.


Date: November 16, 1998            ELECTROSOURCE, INC.



                                        /s/ Michael G. Semmens
                                   Michael G. Semmens
                                   Chairman, President
                                   and Chief Executive Officer



                                        /s/ Mary Beth Koenig
                                   Mary Beth Koenig
                                   Chief Accounting Officer
                                    and Treasurer



                     Washington, D.C.  20549
                                
                                
                                
                                
            ________________________________________
                                
                           EXHIBITS TO
                            FORM 10-Q
                                
                                
       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934
                                
                                
     For the quarter ended           Commission File Number:
      September 30, 1998                     0-16323
                                
                                
           __________________________________________
                                
                                
                       ELECTROSOURCE, INC.
      (Exact name of Registrant as specified in its charter)
                                                 
           Delaware                          742466304
(State or other jurisdiction of          (I.R.S. Employer
incorporation or organization)          Identification No.)
                                                 
 2809 Interstate 35 South, San                 78666
         Marcos, Texas
(Address of principal executive             (Zip Code)
           offices)
                                                 
       Registrant's telephone number, including area code:
                          (512) 753-6500
                                 
   Securities registered pursuant to Section 12(b) of the Act:
                               None
                                                 
   Securities registered pursuant to Section 12(g) of the Act:
                                                 
             Common Stock, par value $1.00 per share
                         (Title of Class)
                                


                        INDEX TO EXHIBITS


No.                      Description                       Page
                                                               
10.1    Severance Agreement between James M. Rosel and       
        Electrosource, Inc. effective August 31, 1998.      21
                                                               
10.2    Amendment Number One to Stock Purchase Warrant       
        dated    August   18,   1998,   issued   under       
        Subscription  Agreements between  participants       
        and  Electrosource,  Inc.  dated  January  23,       
        1997.                                               39
                                                             
27.     Financial Data Schedule                             40