According to sources, Tesla Inc. recently settled to buy batteries from South Korea’s LG Chem Ltd. The batteries will be in use for electric vehicles formed out in China.
Batteries made by LG Chem factory will be in use at the primary Model 3 cars. These cars were manufactured in the plant near Shanghai, Tesla’s first outside of the U.S.
Sources released the information and asked not to be identified as they were discussing a private matter.
Moreover, LG Chem batteries will also be in use on the Model Ys. They will be in the process once the compact crossover car is released.
Meanwhile, shares of LG Chem increased.
The supply agreement isn’t exclusive to LG Chem. It means Tesla might acquire batteries from other suppliers as the Model 3 maker starts production in China later this year.
Tesla plans to use several battery suppliers for its China-made cars.
News reports in March stated Tesla has also been in discussion with top Chinese battery producer Contemporary Amperex Technology Co. Ltd., regarding a supply deal.
Tesla has a well-established relationship with Japan’s Panasonic Corp. This company also produces a battery with the carmaker in Nevada.
A key step on the plan of Chief Executive Officer, Elon Musk of expanding in China is by securing battery supply.
It is an increasingly important market for the loss-making company, as incentives for EVs in the U.S. diminish.
Meanwhile, Tesla has a strong result in China. Local competitors have a head start made by the significant backing of the sector from Beijing.
Imported vehicles were made expensive by tariffs, while locally built EVs appreciate government inducements.
For Seoul-based LG Chem, winning an order from a high-profile customer like Tesla boosts its profile. It makes the company one of the world’s emerging battery-making powerhouses.
Shares of the South Korean company mounted as much as 3.9% and strengthened 2.8% in Seoul.
Panasonic weakened as much as 0.9% in Tokyo, and CATL tumbled as much as 4.9% in Shenzhen.
Ongoing Tesla and CATL Discussions
Meanwhile, the $18 billion Electric-Car Bubble is at risk of exploding in China.
A spokesman for LG Chem stated that the company doesn’t comment on issues linked to customers.
Tesla representatives in China did not respond to numerous requests for comment. A CATL representative declined to comment.
Discussion with CATL is ongoing, but they are taking time. According to sources, the prolonged talks are due to the two sides talking about technical specifications.
One of the people said LG Chem was more flexible in meeting Tesla’s technology requirements.
LG Chem will offer Tesla with the so-called 21700 type battery cells. These batteries have more capacity than some older battery types.
The batteries will be in process at LG Chem’s factory in Nanjing. The place is about 200 miles or 320 kilometers west of Shanghai.
According to news reports, a unit of South Korea’s fourth-largest corporation, LG Chem is the world’s second-biggest manufacturer of lithium-ion battery cells.
The company is in quest of reducing its dependence on chemical production. It will be by bolstering sales of electric-vehicle batteries.
It has supply contracts with Volvo Cars to Renault SA and General Motors Co.
On January 7, Tesla broke ground on the factory outside Shanghai.
It is after years of negotiations with Chinese authorities about becoming the first foreign automaker to own a manufacturing facility in the country exclusively.
By the end of 2019, Tesla plans to start producing cars at the factory.