According to sources, the American electric-vehicle giant Tesla is in talks with Chinese battery manufacturer EVE Energy to add the company to its Shanghai factory supply chain, as it is looking to increase procurement of lower-cost batteries.
EVE manufactures lithium iron phosphate (LFP) batteries that are less costly to produce due to the use of iron rather than more expensive nickel and cobalt.
However, compared to the more common nickel or cobalt alternative, LFP batteries have a shorter range on a single charge.
After China’s Contemporary Amperex Technology (CATL), EVE will become Tesla’s second LFP battery supplier.
As per the sources, the Palo Alto, California-based company is seeking to finalize the partnership in the third quarter.
Shenzhen-listed EVE is conducting final tests on its products for Tesla, sources said.
Due to concerns about nickel supply for scaling up battery production, Tesla Chief Executive officer Mr. Elon Musk announced this year that the company would switch standard range cars to an iron cathode.
The discussions take comes as Tesla faces increasing competition from Chinese rivals such as Nio and Li Auto along with escalating operating costs.
According to data, China’s factory gate prices rose at their fastest pace in three and a half years in April as the world’s second-largest economy gathers steam.
Tesla is also under increasing regulatory pressure in China as a result of customer complaints about product safety and scrutiny over how it manages data.
For its China-made Model 3 and Model Y cars, Tesla uses batteries from China’s CATL and South Korea’s LG Chem. Since late last year, CATL has been the sole supplier of LFP batteries for China-made Model 3 cars with standard driving ranges.
According to sources, Tesla has been working closely with EVE to ensure that its batteries meet its requirements, to bring in the supplier as a “check and balance” against CATL.
The sources said that Tesla could start using EVE’s LFP batteries in the China-made Model 3 and Model Y vehicles within the next six months, and EVE has ramped up production in preparation for the potential collaboration.
EVE, which supplies batteries to Xpeng Inc, a Chinese electric vehicle manufacturer, announced that it also has battery supply partnerships with German BMW and Daimler AG.