Tesla has reached a preliminary agreement with CATL, which could become a battery supplier to Chinese-made Tesla electric cars as early as next year, according to people familiar with the matter. The two companies are in talks to expand their global partnership. After months of negotiations, Tesla CEO Elon Musk traveled to Shanghai at the end of August and met with CATL Chairman Zeng Yuqun for about 40 minutes, following a non-binding deal, people familiar with the matter said.
People familiar with the matter said that while a final agreement was expected to be signed by mid-2020, there was no guarantee that it would be reached.
The batteries will be used for model 3 cars produced at the Tesla plant near Shanghai, which will open this year. People familiar with the matter said the two companies still need edged details, such as how many batteries Tesla will buy. In addition, communication on potential global supply contracts is being conducted separately. Tesla will use batteries from Both Panasonic and LG Chemical Co. in China, one of the people said.
Ensuring an adequate supply of local batteries, the most expensive component for electric cars, is crucial to Musk’s expansion in China, the world’s largest car market. China’s supply will make Palo Alto, California-based Tesla less dependent on imports. And since China has made building a world-leading electric vehicle ecosystem a priority, it is also in China’s interest.
Representatives for Tesla did not comment. LG Chem and CATL Decline declined to respond, and Panasonic did not immediately respond to requests for comment.
For CATL, the final agreement will enhance its image as the world’s new battery maker. The company, based in southern Fujian province, has been a supplier to global electric car start-ups such as NIO and established auto giants such as Volkswagen and Daimler.
Tesla has been ramping up construction in Shanghai for the past nine months, its first outside the United States, and its mass production is scheduled to begin by the end of the year. The company is still building a facility that will eventually be used to make batteries, but at the same time, it has agreed to buy the batteries from LG Chemical. People familiar with the matter said in August that the South Korean battery maker could not become Tesla’s sole battery supplier.
If Tesla agrees to sign a global agreement, CATL would become the second battery partner to sign such a deal with Panasonic.
Batteries make up a major part of the cost of electric vehicles, meaning long-term supply deals with top automakers could easily reach billions of dollars. The Chinese-made Tesla Model 3 starts at about $50,000, which is cheaper than the best-selling ES6 models such as The Ulysses.