Tesla has reached a preliminary agreement to start using Contemporary Amperex Technology Company Ltd (CATL) as a battery supplier for cars made in China from as early as next year, and the companies are in talks to expand the relationship globally, reported Bloomberg.
Following months of negotiations, the companies clinched a non-binding deal after Tesla Chief Executive Officer Elon Musk travelled to Shanghai in late August 2019 and met with CATL Chairman Zeng Yuqun for about 40 minutes. Though a final agreement is expected to be signed by mid-2020, there is no guarantee that will happen.
The companies still need to iron out details such as how many batteries Tesla will purchase, and separate discussions are underway on a potential global supply contract. Tesla will use batteries from Panasonic Corporation and LG Chem in China in the meantime.
Securing enough domestic batteries—the costliest part of an electric vehicle—is crucial to Musk’s efforts to expand in the world’s biggest car market. Chinese supply would allow California-based Tesla to rely less on imports, reducing any impact from tariffs that have fluctuated amid the US-China trade war.
The supply is also likely to please Beijing, which has prioritised the building of a world-leading electric-vehicle ecosystem.
For CATL a final agreement would bolster its profile as one of the world’s emerging battery-making powerhouses. The company, based in the southern province of Fujian, already supplies domestic EV start-ups including NIO as well as global carmakers Volkswagen and Daimler.
Tesla has been building the Shanghai plant, its first outside the US, for the past nine months, with mass production targeted to start at year-end. The company is also building facilities to eventually make batteries, but in the meantime, it’s agreed to purchase them from LG Chem.