Tesla's Elon Musk/Bloomberg
Securing battery supply is a key step in Chief Executive Officer Elon Musk’s plan to expand in China, an increasingly important market for the loss-making company as incentives for EVs in the US wane.
Sunday 25, August 2019
Tesla has agreed to acquire batteries from South Korea’s LG to be used in electric vehicles produced out in China, reported Bloomberg.
Batteries made by LG will be used initially in Model 3 cars manufactured in the plant near Shanghai, Tesla’s first outside of the US and also on the Model Ys produced there once the compact crossover car is released.
The supply agreement isn’t exclusive to LG, meaning Tesla could procure batteries from other suppliers as the Model 3 maker prepares to start production in China later this year, part of the EV pioneer’s push into what is the world’s biggest market for new-energy vehicles.
Tesla plans to use multiple battery suppliers for its China-made cars and has also been in talks with top Chinese battery producer Contemporary Amperex Technology about a supply deal. Tesla has a long-standing relationship with Japan’s Panasonic, which makes batteries with the carmaker in Nevada.
While Tesla has a strong following in China, local rivals have a head start thanks to significant support for the sector from Beijing. Imported vehicles are made costlier by tariffs, while locally built EVs enjoy government incentives.
For Seoul-based LG, winning an order from a high-profile customer like Tesla bolsters its profile as one of the world’s emerging battery-making powerhouses.
Talks with CATL are continuing but are taking time as the two sides discuss technical specifications. LG was more flexible in meeting Tesla’s technology requirements.
LG will provide Tesla with so-called 21700 type battery cells, which have more capacity than some older battery types, the batteries will be made at LG’s factory in Nanjing.
The company is seeking to reduce its reliance on chemical production by boosting sales of electric-vehicle batteries, it has supply deals with Volvo Cars to Renault and General Motors.
Though electric-vehicle sales are rising in China, growth is being held back by the government’s move to phase out subsidies on EV purchases. China’s overall auto market is suffering a historic slump, with the industry’s total sales in decline for more than a year.