I see that the Tesla battery pack weighs 1,200 pounds. Reducing weight greatly improves efficiency, handling, braking, and acceleration, meaning lighter weight is all around better. It seems a bit wasteful of weight and materials to have 7,000 metal casings around 7,000 tiny batteries, connected with thousands of connections, rather far fewer larger cells. I'm surprised they don't use perhaps 24 or 100 larger cells instead, thereby eliminating thousands of unnecessary casings and connections.
There are a number of reasons.
1. 18650 cells are the cheapest per kWh, significantly so.
2. The smaller cell size helps with thermal management. It's easier to deal with the heat from using the batteries the smaller they are. There have been problems with airlines that use larger cells with them catching fire.
3. Power capability is actually higher with smaller cells. For a car with the acceleration of a Model-S, this is important.
4. Due to the amount of R&D into the cell, which is the most common LiIon cell in the world, weight and volume wise it's at least as energy dense as anything else, extra casing or not.
5. The connections aren't actually that big of a deal, most of the batteries are simply end-to-end.