Tesla in Discussion with Chinese Battery Maker EVE Energy

News agency Reuters has revealed that Tesla Inc. (NASDAQ: TSLA) is in talks with China’s EVE Energy Co. (SZSE: 300014) in its continued drive to source lower cost batteries. The exclusive report, which was released on Friday 14 May, suggests that Tesla could be preparing to add EVE to its Shanghai factory supply chain.

The Chinese firm manufactures lithium iron phosphate (LFP) batteries, which are less expensive to produce because they use iron rather than costly nickel or cobalt. While LFP batteries have a much shorter range on a single charge than their nickel or cobalt counterparts, it is widely held that they are better suited to mass market electric vehicles because they are cheaper and safer. Nevertheless, it is expected nickel and cobalt batteries will continue to be used for luxury electric cars where high performance is a key concern for affluent customers.

Earlier this year, Tesla’s CEO Elon Musk said that his company was shifting standard range cars to an iron cathode due to concerns about the supply of nickel for scaling up battery production. As a case in point, last March the American electric vehicle maker entered into a partnership with the Goro nickel mine in New Caledonia in an effort to secure a reliable supply of nickel.

Friday’s report states that talks between Tesla and EVE are advanced, and that Mr Musk’s firm is seeking to finalize the partnership in the third quarter of this year, according to two people familiar with the matter. It also transpires that the Shenzhen-listed battery manufacturer has already run some final-stage product tests for Tesla.

EVE already has battery supply partnerships in place with Germany’s BMW (XTRA: BMW) and Daimler AG (XTRA: DAI), and supplies batteries to New York-listed Chinese electric vehicle manufacturer XPeng Inc. (NYSE: XPEV). If talks are successful, EVE will become the country’s second supplier of LFP batteries to Tesla after Contemporary Amperex Technology Co. (SZSE: 300750) (CATL).

Should the deal go through, sources suggest that Tesla could begin using EVE’s LFP batteries in its China-made Model 3 and Model Y vehicles within the next six months.