Tesla reportedly in the final stages of negotiations with LG for a battery cell supply agreement

Tesla builds its own battery packs, but imports the several thousands battery cells needed per pack from suppliers, mainly Panasonic. The automaker is heavily investing to change that by building the Gigafactory, in partnership with Panasonic, to manufacture both the cells and battery packs in the Nevada desert east of Reno.

But the planned output of the factory is 35 GWh in battery cells and 50 GWh in battery packs, meaning the Gigafactory will need to import 15 GWh of battery cells. Tesla already confirmed its intention to source the cells from more than one suppliers “potentially including Panasonic”, and today we learn through a new report from Asia Nikkei that the company is reportedly in the final stages of negotiations with LG Chem.Although Panasonic is currently the clear leader in li-ion cells for the auto market with a reported 46% market share according to research company Techno Systems, LG Chem is believed to be well-positioned to gain on the Japan-based electronic giant after signing several contracts with automakers committed to electric vehicles such as Audi, Renault and GM.

LG recently announced it accelerated battery production at the Holland plant in Michigan to meet the expected demand for the 2016 Chevy Volt and ahead of the release of the Bolt.

Tesla being in the advanced stages of negotiations with LG shouldn’t be a surprise for investors. Tesla boasted about the company’s ability to source battery cells from multiple vendors in its SEC filing:

We believe our ability to change battery cell chemistries and vendors while retaining our existing investments in software, electronics, manufacturing equipment, testing and vehicle packaging, will enable us to quickly deploy various battery cells into our products and leverage the latest advancements in battery cell technology.

In the same filing, the company said that it had already selected several sources for the battery cells, but qualified only one cell (18650 from Panasonic) for its battery pack and Tesla expects qualifying additional cells from other manufacturers “in 2015”.

The negotiation with LG Chem seems to indicate they will be the next to qualify.