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, 1997
                                
                               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(I.R.S. Employer Identification No.)
of incorporation or organization)

     2809 Interstate 35 South
        San Marcos, Texas                  78666
(Address of principal executive offices) (Zip Code)


                         (512) 753-6500
      (Registrant's telephone number, including area code)


      (Former name, former address and former fiscal year,
                  if changes since last report)

      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:  4,152,807 shares as of November 10, 1997.


                  INDEX TO FINANCIAL STATEMENTS
                       September 30, 1997
                                

   Electrosource, Inc.                    Commission file number 0-16323



Condensed Balance Sheets at September 30, 1997  (Unaudited)                 
  and December 31, 1996                                              Page  3
                                                                            
Condensed Statements of Operations for the three and nine months            
  ended September 30, 1997 and 1996 (Unaudited)                      Page  4
                                                                            
Condensed Statements of Cash Flows for the nine months ended                
  September 30, 1997 and 1996 (Unaudited)                            Page  5
                                                                            
Notes to Condensed Financial Statements                              Page  6
                                                                            
Management's Discussion and Analysis                                 Page  9
                                                                            
Exhibits to Form 10Q                                                 Page 16
                                                                            
Index to Exhibits                                                    Page 17


                 Part I - Financial Information
                                

Item 1.  Financial Statements

                       Electrosource, Inc.
                    Condensed Balance Sheets
                                
                                                       September   December 31,
                                                        30, 1997      1996
                                                     (Unaudited)             
                                                                
ASSETS                                                                 
                                                                       
CURRENT ASSETS                                                         
  Cash and cash equivalents                          $ 1,081,700   $  367,861
  Trade receivables                                      781,612      247,631
  Inventories                                            234,236      249,235
  Prepaid expenses and other assets                       60,109      164,319
     TOTAL CURRENT ASSETS                              2,157,657    1,029,046
                                                                             
PROPERTY AND EQUIPMENT (net of accumulated depreciation
 of $3,000,113 in 1997 and $2,316,995 in 1996)         4,337,755    4,787,019
                                                                             
INTANGIBLE ASSETS (net of accumulated amortization                           
  of $3,351,933 in 1997 and $2,607,093 in 1996)        2,109,627    2,854,467
                                                                             
RESTRICTED CASH                                           81,604      744,824
DEBT ISSUANCE COSTS                                    1,364,840       72,950
TOTAL ASSETS                                         $10,051,483   $9,488,306
                                                                             
                                                                             
LIABILITIES AND SHAREHOLDERS' EQUITY                                         
                                                                             
CURRENT LIABILITIES                                                          
  Accounts payable                                    $1,078,315  $   704,841
  Accrued liabilities                                  1,200,788    1,103,751
  Deferred revenue and advance payments on               850,114    1,157,028
batteries
  Current portion of capital lease obligations            71,492      658,226
  Current portion of convertible notes payable                        250,000
                                                               0
     TOTAL CURRENT LIABILITIES                         3,200,709    3,873,846
                                                                             
CONVERTIBLE NOTES PAYABLE (less current portion)       4,100,000            0
TECHNOLOGY LICENSE PAYABLE                               551,689    1,248,684
CAPITAL LEASE OBLIGATIONS (less current portion)         166,800      519,047
                                                                             
SHAREHOLDERS' EQUITY                                                         
  Common stock par value $1.00 per share;                                    
authorized 50,000,000
     shares; shares issued and outstanding:                                  
4,152,807 in 1997 and
     3,857,912 in 1996                                 4,152,807    3,857,912
  Warrants                                                     0            0
  Paid in capital                                     49,322,524   45,876,668
  Accumulated deficit                               (51,443,046) (45,887,851)
                                                       2,032,285    3,846,729
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $10,051,483  $ 9,488,306
See notes to condensed financial statements.
                                
                                
                       Electrosource, Inc.
         Condensed Statements of Operations (Unaudited)
                                
                                
                                
                            Three Months Ended          Nine Months Ended
                              September 30,               September 30,
                                 1997         1996          1997          1996
Revenues                                                                      
  Battery sales              $122,526     $173,240    $  785,581    $  574,773
  Project revenue             703,951      126,660     1,908,814       187,750
  Capacity maintenance              0    2,365,535             0     2,365,535
revenue
  Interest income              28,274       31,410        83,780        72,953
                              854,751    2,696,845     2,778,175     3,201,011
                                                                              
Costs and expenses                                                            
  Manufacturing               955,381      952,086     2,629,889     2,616,640
  Selling, general and        634,419      735,944     1,860,073     2,294,635
administrative
  Research and                745,782      395,189     1,811,443     1,396,877
development
  Technology license           25,000       25,000        75,000        75,000
and royalties
  Depreciation and            471,997      523,991     1,427,957     1,565,898
amortization
  Interest expense            117,791       47,467       339,692       406,861
  Loss on payment of          189,316            0       189,316             0
capital lease
  Loss on disposal of               0            0             0       171,895
equipment
                            3,139,686    2,679,677     8,333,370     8,527,806
Income (loss) before      (2,284,935)       17,168   (5,555,195)   (5,326,795)
income taxes
                                                                              
  Income taxes                      0            0             0             0
                                                                              
Net income (loss)        $(2,284,935)   $   17,168  $(5,555,195)  $(5,326,795)
                                                                              
Net income (loss) per     $    (0.55)   $      .00   $    (1.37)   $    (1.48)
common share
                                                                              
Average common shares       4,132,804    3,829,031     4,056,612     3,607,548
outstanding
                                                                              

See notes to condensed financial statements.





                       Electrosource, inc.
         Condensed Statements of Cash Flows (Unaudited)
                                
                                                       Nine Months Ended
                                                         September 30,
                                                           1997          1996
                                                                             
OPERATING ACTIVITIES                                                         
  Net loss                                         $(5,555,195)  $(5,326,795)
  Adjustments to reconcile net loss to net cash                              
used in operating activities:
     Equity instruments issued for consulting           164,800        98,600
services
     Depreciation and amortization                    1,598,568     1,577,984
     Interest expense paid in Common Stock or           100,000       105,103
Notes
     Non-cash interest expense (conversion                    0       141,750
discount)
     Loss on payment of capital lease                   189,316             0
     Loss on disposal of equipment                            0       171,895
     Non-cash accruals                                   75,650        81,300
     Changes in operating assets and liabilities:                            
       (Increase) decrease in trade receivables       (533,981)       332,004
       Decrease in inventories                           14,999       189,294
       Decrease in prepaid expenses and other            65,434        48,048
assets
       Increase (decrease) in accounts payable          294,863     (827,282)
and accrued liabilities
       Increase (decrease) in deferred revenue        (306,914)       695,353
and advance payments on batteries
          CASH USED IN OPERATING ACTIVITIES         (3,892,460)   (2,712,746)
                                                                             
INVESTING ACTIVITIES                                                         
  Purchases of property and equipment                  (68,049)     (262,155)
          CASH USED IN INVESTING ACTIVITIES            (68,049)     (262,155)
                                                                             
FINANCING ACTIVITIES                                                         
  Payments of notes payable and capital lease         (638,326)     (394,830)
obligations
  Proceeds from issuance of common stock, net           599,294     2,546,981
  Proceeds from issuance of convertible notes         4,000,000             0
payable
  Proceeds from exercise of stock options                50,160             0
  Decrease in restricted cash                           663,220             0
          CASH PROVIDED BY FINANCING ACTIVITIES       4,674,348     2,152,151
                                                                             
          INCREASE (DECREASE) IN CASH AND CASH          713,839     (822,750)
EQUIVALENTS
                                                                             
  Cash and cash equivalents at beginning of             367,861     2,083,032
period
                                                                             
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $1,081,700    $1,260,282
                                                                             
                                
See notes to condensed financial statements.





Item 1.  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, 1996, and are
not necessarily indicative of results for the entire year.

Certain  reclassifications have been made to the  1996  financial
statements to conform with the 1997 presentation.


NOTE B - Inventories

                                            September 30,    December 31,
                                                1997             1996
                                                                       
       Raw Materials                           $178,094        $151,841
       Work In Progress                          30,626          31,406
       Finished Goods                            25,516          65,988
                                               $234,236        $249,235


NOTE C - Property And Equipment

                                       September 30,       December 31,
                                           1997               1996
                                                                       
       Office Equipment                     $  782,801      $   751,342
       Production and Lab Equipment          5,254,049        5,062,475
       Leasehold Improvements                1,301,018        1,290,197
                                             7,337,868        7,104,014
       Less:  Accumulated                  (3,000,113)      (2,316,995)
       depreciation
       Total Property and Equipment         $4,337,755       $4,787,019


NOTE D - Convertible Notes Payable

Convertible Notes Payable consist of the following:

                                       September 30,      December 31,
                                           1997               1996
                                                                       
       Convertible Notes - 5%               $4,100,000         $      0
       Convertible Notes - 10%                       0          250,000
                                             4,100,000          250,000
       Less Current Maturities                       0        (250,000)
       Convertible Notes  Payable  -        $4,100,000         $      0
       Long Term

In  March  1997,  the Company entered into a  Note  Purchase  and
Option  Agreement and a Convertible Promissory  Note  and  Option
(the "Agreements") with Corning Incorporated ("Corning").  The 5%
Convertible Note is for $4,000,000, is unsecured and  matures  on
March 26, 2002.  Interest is payable semi-annually in cash or  in
kind at the option of the Company.  The conversion price is $5.50
per  share.  A note payable in the amount of $100,000 was  issued
in September 1997 for interest for the six months then ended with
the  same terms and conditions as the original note.  The Company
also  granted Corning an option to purchase up to 275,000  shares
of  Common Stock at $7.00 per share and an option to purchase  up
to  225,000  shares of Common Stock at $9.00  per  share.   These
options are exercisable until March 1999.  The fair market  value
of  the  options was estimated to be $1,462,500, using the Black-
Scholes  option valuation model.  This amount was recorded  as  a
Debt  Issuance  Cost and is being amortized to  interest  expense
over the term of the Note.

In  April  1995, the Company issued $6,000,000 of 10% Convertible
Debentures  (the  "April  1995  Debentures")  resulting  in   net
proceeds to the Company of $5,375,000.  The April 1995 Debentures
were convertible into Common Stock at a conversion price equal to
80% of the average closing price of the Common Stock for the five
business  days immediately preceding such time as the  debentures
were converted and matured on April 12, 1997.  During 1995, April
Debentures  with  a  total principal amount  of  $5,750,000  were
converted  into  379,548 shares of Common Stock.   The  remaining
$250,000  of outstanding April 1995 Debentures matured  on  April
12, 1997, and were paid in cash by the Company.

During  1995 and the first quarter of 1996, the Company accounted
for   the  conversion  of  convertible  debentures,  issued  with
conversion rights at a discount to market, as sales of securities
and  treated  the discount as a cost of capital.  The  Securities
and  Exchange Commission subsequently announced that it  believes
such   discounts   should  be  treated   as   interest   expense.
Accordingly,  the Company restated its financial  statements  for
the  year  ended  December  31, 1995 to reclassify  the  discount
(generally 20-25%) as interest expense and record it as a cost of
borrowing.  The discount was amortized over the period  beginning
with  the  issuance of the debt to the first date that conversion
could  occur (generally 60 days).  The restatement increased  the
net  loss  for  the  year ended December 31, 1995  by  $2,603,250
($1.24 per share) and increased the accumulated deficit and  paid
in  capital by the same amount. This restatement is reflected  in
the  Company's  financial statements for the year ended  December
31,  1996 filed on Form 10-K.  The Company's financial statements
for  the  nine  months  ended September 30,  1996,  as  presented
herein,  have been restated to reflect an additional $141,750  in
interest expense ($0.04 per share).


NOTE E - Common Stock

In  January  1997, the Company completed a private  placement  of
Common  Stock  with certain of its executive officers  and  other
accredited  investors which raised net proceeds of $643,602,  net
of  advisory fees.  The offering was conducted in two parts.  The
terms  for  the  first  part,  in which  the  executive  officers
participated,  were  $6.56 per share of  Common  Stock  purchased
(80,897 shares) and one warrant at an exercise price of $7.56 per
share  for  each  dollar invested (530,883  warrants)  for  gross
proceeds  of  $530,684 to the Company.  The terms of  the  second
part  were  $5.25  per  share of Common Stock  purchased  (28,500
shares),  with  three warrants per share (85,500  warrants),  for
gross  proceeds  of  $149,625.   One-half  of  the  warrants  are
exercisable at a price of $5.25 per share and one half  at  $6.25
per share.  All warrants have a two-year term from date of issue.

In   April  1997,  the  Company  filed  an  amended  registration
statement  on Form S-3 for the sale of 127,500 shares  issued  to
Ally  Capital Corporation ("Ally") on behalf of its assignees  as
prepayment  for  capital lease obligations owed by  the  Company.
The  shares were valued at $867,000 based upon the quoted  market
price of the stock on the date the agreement to issue the 127,500
shares was signed.  The shares were sold by Ally on behalf of its
assignees,  and  the  proceeds were used  to  satisfy  the  lease
obligations (approximately $550,000) and to exercise  the  option
to   purchase   the   equipment   for   approximately   $165,000.
Additionally, a loss of $189,316 was recorded upon the completion
of  this transaction and the payment of the capital lease.   Upon
payment  of all lease obligations, letters of credit for $663,220
which   secured   the   lease  obligations  were   canceled   and
certificates  of  deposit of an equal amount that  collateralized
the letters of credit were released.


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  claims 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  actions
taken by HBTL to pursue the claims.  The Company filed a petition
in  state  court  in Travis County, Texas, seeking,  among  other
things,  a  declaratory  judgment  that  HBTL  has  no  right  to
arbitration or monetary relief.  HBTL contested jurisdiction  and
removed  the proceedings to the U.S. Federal Courts.  The Federal
District Court to which the action was removed has ruled that  it
cannot exercise personal jurisdiction over HBTL and therefore has
no  power  to hear the case.  The Company asked for a re-hearing,
which  was  denied.   On August 22, 1997, the  Company  filed  an
appeal in the U.S. Fifth Circuit Court of Appeals from the  final
judgment and rulings in the District Court.  On October 31, 1997,
HBTL's  legal counsel filed a motion to withdraw as  counsel  for
HBTL for inability to reach an agreement with HBTL for payment of
legal  services  at the appellate level.  No liability  has  been
recorded  in the financial statements at September 30, 1997,  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.


NOTE G - Earnings Per Share

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share  ("SFAS 128"), which is effective for financial  statements
issued  for  periods  after December 15,  1997.   SFAS  128  will
require  restatement of prior reported earnings (loss) per  share
amounts.   Under SFAS 128, the dilutive effect of stock  options,
warrants  and  similar securities is excluded in computing  basic
earnings  (loss) per share.  Since the Company has  reported  net
losses in prior periods, Statement 128 is not expected to have  a
material  impact on the Company's prior reported loss  per  share
amounts.   The  method of calculating fully diluted earnings  per
share will remain essentially unchanged.


NOTE H - Liquidity

The  Company has not generated sufficient cash flow from  battery
sales  and project revenue to fund operations for the nine months
ended September 30, 1997.  During the nine months ended September
30,  1997,  the  Company  sold 109,397  shares  of  Common  Stock
(including  616,383  warrants with exercise prices  ranging  from
$5.25  to  $7.56  per  share)  which generated  net  proceeds  of
$643,602  to  the  Company.  In March 1997, the Company  received
$4,000,000  from  the  sale to Corning of a  five-year  unsecured
convertible  promissory note bearing interest  at  5%,  including
500,000  options at exercise prices of $9.00 per  share  (225,000
options)  and $7.00 per share (275,000 options).  The  conversion
price of the convertible promissory note is $5.50 per share.   In
September   1997,  the  Company  completed  a  transaction   with
equipment  lessors  through the issuance  of  127,500  shares  of
Common Stock which were sold by the lessors and the proceeds were
used  to  satisfy  the  lease obligations  and  to  purchase  the
equipment.   Upon  payment of the lease obligations,  letters  of
credit  for $663,220 which secured the obligations were  canceled
and certificates of deposit of an equal amount were released.  As
of  October  31, 1997, the Company had approximately $900,000  of
unrestricted cash available.

Management  expects  the  level  of  battery  sales  to  increase
beginning in late 1997/early 1998 from an anticipated increase in
orders, primarily from those currently testing batteries and from
customers  for  which  the  Company is currently  developing  and
delivering  prototype  batteries.   Certain  anticipated  battery
orders  have  moved  from 1997 into 1998 due to  customer  delays
associated  with  new  product introduction and  additional  time
required to produce prototype batteries to meet specific customer
and  regulatory  requirements.  Discussions are in  process  with
certain  of  these  customers for the manufacture  of  additional
prototype batteries for further testing in early 1998.   However,
the  timing  and  amount of battery sales is uncertain.   Revenue
from  project  agreements (or "services") is expected  to  remain
relatively  constant during the fourth quarter of 1997  and  into
1998.   Management believes that revenues from battery sales  and
services  (combined with proceeds received from the  exercise  of
stock  options  in  the fourth quarter) will generate  sufficient
funds   to  support  its  overall  working  capital  and  capital
expenditure  needs  through  1997; however,  if  the  anticipated
battery  orders are not received in late 1997 or if cash receipts
from  project revenue are delayed, additional debt and/or  equity
financing  will be necessary to sustain operations.  Debt  and/or
equity  financing  will be necessary in late 1997/early  1998  to
fund working capital needs and to further expand and automate the
manufacturing facility to meet anticipated battery  orders.   The
Company  has historically been able to raise funds on a  repeated
basis  to sustain operations.  However, there can be no assurance
that additional funding can be obtained in a timely manner and on
terms acceptable to the Company, if at all.

The  Company's  Common  Stock is traded on  the  Over-the-Counter
Market  and is reported on NASDAQ.  In order to maintain  listing
by  NASDAQ,  the Company must maintain a minimum  $1  million  of
stockholders'  equity which increases to $2 million  on  February
23,  1998.   The  Company is currently in  compliance  with  this
requirement.  There can be no assurance that the minimum  can  be
maintained  throughout  1997 at the  current  level  of  activity
without additional equity financing, conversion of existing debt,
exercise  of  stock options or other transactions  that  increase
shareholders'  equity.   If the minimum required  amount  is  not
maintained, the NASDAQ may choose to delist the Common  Stock  of
the  Company  from trading which would restrict the liquidity  of
the Common Stock.  Ordinarily, before delisting, the NASDAQ would
provide  the  Company notice and an opportunity  to  present  and
carry out a plan for compliance.



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  approximately
$123,000  and  $786,000  for  the three  and  nine  months  ended
September  30,  1997 compared to $173,000 and  $575,000  for  the
three  and  nine months ended September 30, 1996.   Approximately
65% and 55%  of battery sales for the nine months ended September
30,  1997  and 1996, respectively,  were to Chrysler Corporation.
The  remainder of battery sales in both years were  derived  from
smaller orders from numerous companies for evaluation and testing
of  the Horizon battery in their products.   Sales to Chrysler in
1996  and  1997  have been less than projected  due  to  weakened
government   zero  emission  vehicle  mandates   in   California.
However,  government zero emission vehicle mandates in the  state
of  New York, which have recently been challenged and upheld, are
expected to result in an increase in battery orders beginning  in
late 1997 or early 1998, primarily from Chrysler, as indicated by
Chrysler  to the Company.  Current models of the Horizon  battery
are   being   evaluated  by  certain  other  original   equipment
manufacturers  and  vehicle converters for potential  integration
into  their products in late 1997/early 1998 in Europe, Asia  and
the  United  States.   Aircraft starting battery  prototypes  are
undergoing testing for regulatory approval necessary for customer
delivery.   Additionally,  the  Company  currently  has   several
prototype  battery configurations developed under contract  which
are  being  evaluated by customers with a view towards commercial
purchase  if  tests are successful, specifications  are  met  and
pricing  can  be agreed upon.  Discussions are also ongoing  with
such  customers for orders of additional prototype batteries  for
further evaluation and testing.  Management expects that sales of
batteries will increase in late 1997 and early 1998 as  a  result
of  these  efforts.   However, the amount and timing  of  battery
sales to potential customers is uncertain.

The  Company  had project revenue of approximately  $704,000  and
$1,909,000  for  the three and  nine months ended  September  30,
1997  compared  to $127,000 and $188,000 for the three  and  nine
months  ended September 30, 1996.  Project revenue  in  1997  was
derived   from  various  customers  with  whom  the  Company   is
developing and/or manufacturing evaluation batteries for  various
hybrid  vehicle,  electric vehicle, starting and outdoor  product
applications (Fiat Auto, SMH Automobile S.A. (SMH),  the  Defense
Advanced  Research  Projects  Agency  (DARPA),  Black  &  Decker,
Chrysler  and others which remain confidential).  These contracts
were  awarded to the Company in 1996 and 1997.  The  majority  of
these projects are expected to be complete by the end of the year
at  which  time  customer  testing of  additional  prototypes  is
expected  to  intensify.   Revenue  from  project  agreements  is
expected to remain relatively constant during the fourth  quarter
of  1997  and  into early 1998.  Essentially all project  revenue
generated    during   1996   was  from   Chrysler   for   various
environmental tests performed on the battery.

In  July  1996,  the Company received a $3,000,000  payment  from
Chrysler.   This payment was compensation for continued  capacity
maintenance and ramp-up costs incurred by the Company in relation
to  its  role  as  a supplier to the automaker for  its  electric
vehicle   EPIC  Minivan  Program  ($2,365,000)  and  for  various
engineering, research and development (ER&D) efforts  ($635,000).
Accordingly,  $2,365,000  was recorded  as  capacity  maintenance
revenue in the third quarter of 1996 and $635,000 was recorded as
deferred revenue which is being recognized as project revenue  as
the ER&D tasks are performed.

Costs  and  Expenses.  Generally, total costs and  expenses  were
higher for the three months ended September 30, 1997 compared  to
the three months ended September 30, 1996, and were lower for the
nine months ended September 30, 1997, compared to the same period
in  1996.  Certain costs increased in 1997 compared to 1996 while
others  decreased.   Manufacturing costs were  approximately  the
same  for  the  three and nine month periods ended September  30,
1997, compared to the same periods in 1996.  At the current  rate
of   battery  sales,  manufacturing costs  are  not  expected  to
fluctuate  significantly. Management expects manufacturing  costs
will  increase in total but decrease as a percentage  of  battery
sales  when  volume production begins; however,  the  timing  and
amount  of  such orders remains uncertain.  Selling, general  and
administrative  costs  were lower for the three  month  and  nine
month  periods  ended September 30, 1997, compared  to  the  same
periods in 1996 primarily due to cost savings associated  with  a
consolidation   of  office  and  testing  facilities   into   the
manufacturing  facility in the fourth quarter of 1996.   Research
and  development costs were higher for the three and  nine  month
periods ended September 30, 1997 compared to the same periods  in
1996  primarily due to a significant increase in project  revenue
in  1997  as  described  above.   The  Company  hired  additional
engineering  and  manufacturing  personnel  in  1997  to  support
contractual development and manufacture of prototype batteries to
meet specific customer product requirements (primarily SMH, Fiat,
DARPA  and  Black  & Decker).  Additionally, the Company  entered
into  a technical development agreement with Corning in the third
quarter  of  1997  to  jointly improve  the  Company's  products,
production  processes  and automation.  Corning  began  providing
services  under the agreement late in the third quarter of  1997.
The  Company will pay Corning for such services  by issuing stock
options  to  Corning at agreed upon values and  exercise  prices.
The  options  are being expensed at their fair value,  which  was
approximately $100,000 for the quarter ended September 30,  1997.
Work under the agreement has intensified in the fourth quarter of
1997 and is expected to continue  throughout 1998.

Depreciation and amortization costs were lower for the three  and
nine month periods ended September 30, 1997, compared to the same
periods  in  1996 primarily due to the write-off of approximately
$525,000 of equipment in 1996 which was no longer in use.

Interest  costs were higher in the in the quarter ended September
30,  1997, compared to the quarter ended September 30, 1996,  due
to  interest incurred on the 5% $4,000,000 convertible promissory
note  entered  into in March 1997 with Corning  and  the  related
amortization of $1,462,500 of options issued to Corning which are
being  amortized to interest expense over the five year  term  of
the  note.   Interest costs were lower in the nine  months  ended
September  30,  1997 compared to the nine months ended  September
30,   1996.    In  1995,  the  Company  obtained  $3,780,000   of
convertible debt financing which was converted into Common  Stock
in 1996.  Interest costs in 1996 included $141,750 related to the
25% conversion discount from market on the convertible debt.  The
discount  was  amortized  over  the  period  beginning  with  the
issuance  of  the  debt to the first date that  conversion  could
occur.

A  loss  of  $189,316 was incurred in the third quarter  of  1997
upon the prepayment of a capital lease obligation.

Liquidity  and Capital Resources.  During the nine  months  ended
September 30, 1997, the Company did not generate sufficient  cash
flow from operations to fund its working capital needs.  Net cash
used  in  operating activities was approximately $3,900,000.   In
order  to  fund  operating activities, the Company  sold  109,397
shares  of Common Stock (and 616,383 warrants) which resulted  in
net   proceeds   to   the  Company  of  approximately   $640,000.
Additionally, the Company received $4,000,000 in March 1997  from
the sale of a convertible promissory note and options to Corning.
The  Note  bears interest at 5% (payable in cash or in-kind)  and
matures  on  March  26,  2002.   The  Company  also  completed  a
transaction  with certain equipment lessors through the  issuance
of 127,500 shares of Common Stock which were subsequently sold by
the  lessors  and the proceeds used to satisfy lease  obligations
($550,000) and to purchase equipment ($165,000).  Upon payment of
the  lease  obligations,  letters of  credit  for  $663,220  were
canceled  and  certificates of deposit of an  equal  amount  were
released to the Company.  As of October 31, 1997, the Company had
approximately $900,000 of unrestricted cash available.

Management  expects  the  level  of  battery  sales  to  increase
beginning in late 1997/early 1998 from an anticipated increase in
orders, primarily from those currently testing batteries and from
customers  for  which  the  Company is currently  developing  and
delivering  prototype  batteries.   Certain  anticipated  battery
orders  have  moved  from  1997 to 1998 due  to  customer  delays
associated  with  new  product introduction and  additional  time
required to produce prototype batteries to meet specific customer
requirements.  Discussions are in process with certain  of  these
customers  for the manufacture of additional prototype  batteries
for  further  testing  in early 1998.  However,  the  timing  and
amount  of  battery  sales is uncertain.   Revenue  from  project
agreements  (or  "services")  is expected  to  remain  relatively
constant  during  the  fourth quarter  of  1997  and  into  1998.
Management believes that revenues from battery sales and services
(combined with the proceeds received from the exercise  of  stock
options in the fourth quarter) will generate sufficient funds  to
support its overall working capital and capital expenditure needs
through 1997; however, if the anticipated battery orders are  not
received  in late 1997 or if cash receipts from project  revenues
are  delayed,  additional debt and/or equity  financing  will  be
necessary  to  sustain operations.  Debt and/or equity  financing
will be necessary in late 1997/early 1998 to fund working capital
needs  and  to  further  expand and  automate  the  manufacturing
facility  to  meet anticipated battery orders.  The  Company  has
historically  been  able to raise funds on a  repeated  basis  to
sustain  operations.   However, there can be  no  assurance  that
additional  funding  can be obtained in a timely  manner  and  on
terms acceptable to the Company, if at all.

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  claims 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  actions
taken by HBTL to pursue the claims.  The Company filed a petition
in  state  court  in Travis County, Texas, seeking,  among  other
things,  a  declaratory  judgment  that  HBTL  has  no  right  to
arbitration or monetary relief.  HBTL contested jurisdiction  and
removed  the proceedings to the U.S. Federal Courts.  The Federal
District Court to which the action was removed has ruled that  it
cannot exercise personal jurisdiction over HBTL and therefore has
no  power  to hear the case.  The Company asked for a re-hearing,
which  was  denied.   On August 22, 1997, the  Company  filed  an
appeal in the U.S. Fifth Circuit Court of Appeals from the  final
judgment and rulings in the District Court.  On October 31, 1997,
HBTL's  legal counsel filed a motion to withdraw as  counsel  for
HBTL for inability to reach an agreement with HBTL for payment of
legal  services  at  the appellate level.  The  Company  has  not
recorded a liability in the financial statements at September 30,
1997,  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's  Common  Stock is traded on  the  Over-the-Counter
Market  and is reported on NASDAQ.  In order to maintain  listing
by  NASDAQ,  the Company must maintain a minimum  $1  million  of
stockholders'  equity which increases to $2 million  on  February
23,  1998.   The  Company is currently in  compliance  with  this
requirement.  There can be no assurance that the minimum  can  be
maintained  throughout  1997 at the  current  level  of  activity
without additional equity financing, conversion of existing debt,
exercise  of  stock options or other transactions  that  increase
shareholders'  equity.   If the minimum required  amount  is  not
maintained, the NASDAQ may choose to delist the Common  Stock  of
the  Company  from trading which would restrict the liquidity  of
the Common Stock.  Ordinarily, before delisting, the NASDAQ would
provide  the  Company notice and an opportunity  to  present  and
carry out a plan for compliance.

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 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.


                   Part II - Other Information


Item 1.   Legal Proceedings
     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 six related  agreements,
     none   of   which  were  executed.   The  Company  believes,
     therefore, that 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 claims 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 actions taken by HBTL to  pursue  the
     claims.

     On  December 19, 1996, the Company filed a petition  in  the
     District   Court   of  Travis  County,  Texas,   seeking   a
     declaratory judgment that the Agreement is not effective and
     HBTL has no right to arbitration or monetary relief and that
     HBTL  is  not  a  licensee of the Horizon technology.   HBTL
     contested  jurisdiction and removed the proceedings  to  the
     United  States  District Court for the Western  District  of
     Texas,  Austin Division Case No. A-97-CA-080-JN.  The  Court
     subsequently ruled that it has no personal jurisdiction over
     HBTL.  The Company asked for a re-hearing, which was denied.
     On  August 22, 1997, the Company filed an appeal in the U.S.
     Fifth  Circuit Court of Appeals from the final judgment  and
     rulings in the District Court.  On October 31, 1997,  HBTL's
     legal counsel filed a motion to withdraw as counsel for HBTL
     for inability to reach an agreement with HBTL for payment of
     legal services at the appellate level.

     The  Company  has not recorded a liability in the  financial
     statements  at  June  30,  1997  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.


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
     None

Item 6.   Exhibits and Reports on Form 8-K
     (a)  Exhibits
          27.  Financial Data Schedule.
     (b)  Reports on Form 8-K.
               Reports on Form 8-K filed during the quarter ended
          September 30, 1997 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 14, 1997      ELECTROSOURCE, INC.



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



                                /s/  James M. Rosel
                              James M. Rosel
                              Chief Financial Officer
                              and General Counsel



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



                            Form 10-Q
               Securities and Exchange Commission
                     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
               September 30, 1997            Number 0-16323


        ________________________________________________


                      ELECTROSOURCE, INC.
     (Exact name of Registrant as specified in its charter)


             Delaware                    742466304
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization)

     2809 Interstate 35 South
        San Marcos, Texas                  78666
(Address of principal executive offices) (Zip Code)


            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


                        INDEX TO EXHIBITS

(a)  Exhibits.

          27.                    Financial Data Schedule.