Tesla will lower the price of the Model 3, which uses Ningde-era batteries, in the Chinese market.

Tesla will begin selling model 3 cars made in Shanghai with LFP batteries to Chinese customers on Thursday, sources said. Although the price has not yet been announced, lithium iron phosphate batteries do not contain nickel and cobalt, the two most expensive components of conventional NMC or nickel-manganese cobalt batteries, suggesting that the price of Model 3 may soon fall.

Tesla will lower the price of the Model 3, which uses Ningde-era batteries, in the Chinese market.Tesla will lower the price of the Model 3, which uses Ningde-era batteries, in the Chinese market.

So far, most Model 3s made in the U.S. and China use NMC batteries. Currently, the Model 3 costs about $39,900 in China, excluding all government incentives. Tesla could announce the product change as early as Thursday that it will use LFP batteries on all standard Model 3 models made in China, according to anonymous sources.

The Model 3 electric car, made in China with cheap new batteries, sells for Rmb249,900 ($36,800) after deducting government subsidies, which would reduce tesla’s starting price by nearly 10 per cent, according to one person familiar with the matter. Tesla’s cheapest Model 3 currently sells for Rmb271,550 after deducting subsidies.

Sources said the LFP battery was supplied to Tesla by CATL, which this year announced several new improvements to lithium iron phosphate batteries and is known to be close to Tesla. In June, CATL announced that it was ready to start producing cobalt-free batteries, which are about 10 percent cheaper than conventional NMC batteries and have a service life of up to 2 million kilometers. “If someone places an order, we’re ready to produce,” said Zeng Yuqun, CATL’s chief executive. But he did not say whether a contract for long-distance products had been signed. LFP batteries are expected to cost about 10% less than NMC batteries, he has said.

In August, CATL announced that it was developing batteries free of cobalt and nickel. Shortly thereafter, Elon Musk began talking about how his company would soon have a million miles of batteries. Is this a coincidence, or is it a sign that the two companies are working closely together? CATL and Tesla declined to comment.

The next question is whether LFP batteries will appear on Tesla products sold in other countries. Although their energy density is not as high as that of NMC batteries, buyers may be more concerned with lower prices than driving a few more miles if the price advantage is significant.