Tesla Inc wants to shift to a less expensive battery for its electric vehicles but first needs to figure out how to overcome political tensions to get a Chinese partner to build the iron-based batteries near its U.S. factories. The world's two biggest economies have yet to resolve disputes over tariffs, intellectual property rights and Chinese incursions into Taiwan's air defence identification zone. And China's sweeping regulatory crackdown, aimed largely at the technology sector, could pose yet another hurdle. China adopted the technology early and makes 95% of the world's Lithium Iron Phosphate (LFP) batteries, but key patents expire soon and Tesla said it plans to adopt LFP batteries in its fleet of standard-range vehicles globally and move battery production closer to its factories.
"Our goal is to localize all key parts of the vehicles on the continent," Drew Baglino, senior vice president of powertrain and energy engineering at Tesla, said on an earnings call on Wednesday. Tesla is building factories in the United States and Germany. "We're working internally with our suppliers to accomplish that goal, and not just at the end-assembly level but as far upstream as possible."
Tesla currently uses LFP batteries from China's CATL in some China-made Model 3 and Model Ys, and in the United States it started sales of entry-level Model 3 sedans with LFP. The company did not respond to a request for comment.
China adopted the technology early and makes 95% of the world's Lithium Iron Phosphate (LFP) batteries
LFP technology is considered to be cheaper and safer than nickel-based batteries, although they lack the same energy density as nickel-based ones to allow cars to travel farther on a single charge. The technology has garnered interest from EV makers and Reuters reported in June that Apple Inc is in early stage talks with China's CATL and BYD to get LFP batteries for its planned electric vehicles and wants them to build factories in the United States. But CATL was reluctant to build a factory in the country due to political tensions between Washington and Beijing as well as cost concerns, people said at that time.
"We are evaluating the opportunity and possibility of manufacture localization in North America," CATL said in a statement on Friday. "You cannot discount the whole geopolitical aspect of it," Sanjiv Malhotra, founder of battery startup Sparkz and former U.S. Department of Energy executive, told Reuters. "Our customers, they do not want to be caught in this political crossfire," said the U.S. startup, which is looking at setting up LFP production lines in the United States to challenge China's dominance.
CATL is probably better off manufacturing in China, where they have access to the world's lowest-cost materials, Roth Capital analyst Craig Irwin said. "A U.S. facility would need a better U.S. supply chain to get similar to the low cost available in China."
Last year, CEO Elon Musk said Tesla would use LFP batteries for its China-made Model 3, saying the move would free up battery capacity for the Semi truck
'PRIDE AND JOY OF CHINA'
President Joe Biden has made it a priority to support the rollout of electric vehicles to combat climate change, but battery constraints could remain a key hurdle to his ambitious plan. China is the largest global EV market and dominates the supply chain for the manufacture of lithium-ion batteries, including the processing of minerals and raw materials.
"I call LFP the battery of China, because you really only have CATL and BYD. So these are really the kind of pride and joy of China," said Taylor Ogan, chief executive of Snow Bull Capital. Electric Last Mile Solutions Inc (ELMS), a commercial electric vehicle company which currently imports CATL'S battery packs, is in talks with the company about the possibility of sourcing batteries at CATL's potential U.S. factory.
Last year, CEO Elon Musk said Tesla would use LFP batteries for its China-made Model 3, saying the move would free up battery capacity for the Semi truck and other vehicles that require higher-density, long-range batteries based in nickel.
Since then, Musk has pledged to use the tech in more vehicles and energy storage systems. A Houston energy project will use LFP batteries.
The company is facing higher costs primarily due to cobalt prices rising around 70% so far this year, with nickel up around 20% and aluminum up around 50%. Tesla uses these materials to make its batteries.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
