Tesla has reportedly signed a battery supply deal with LG Chem for Gigafactory 3 in China. It would be Tesla’s first deal to supply battery cells for its electric vehicles with a company other than Panasonic.

At first, CEO Elon Musk said that all of Tesla’s new factories, including Gigafactory 3 in China, will include the production of both battery cells and full vehicles, but it appears that the company had to change those plans when it came to Gigafactory 3.

Due to the uncertainty that has come with the trade war between China and the Trump administration, Tesla decided to accelerate its plan to establish manufacturing capacity in China in order to avoid increasing tariff on US vehicles.

In order to accelerate those plans, Tesla decided to hold off on battery production and instead, they plan to work with suppliers.

Musk said last year:

Tesla will manufacture all battery modules and packs at China Gigafactory, as we do today in California & Nevada. Cell production will be sourced locally, most likely from several companies (incl Panasonic), in order to meet demand in a timely manner.

Now Bloomberg reports that Tesla signed its first battery supply contract for the factory.

They went with LG Chem who supply batteries to many other automakers:

Batteries made by LG Chem will be used initially in Model 3 cars manufactured in the plant near Shanghai, Tesla’s first outside of the U.S, said the people, asking not to be identified discussing a private matter. LG Chem batteries will also be used in Model Ys produced there once the compact crossover car is released, they said. Shares of LG Chem jumped.

According to the report, the supply agreement is not exclusive to LG Chem, which means that Tesla could also use other suppliers as originally intended. IT could also begin producing its own batteries in Gigafactory 3 or elsewhere for use in Chinese-built Teslas.

The cells will be 2170 format, as the ones currently built by Panasonic at Tesla’s Gigafactory 1 in Nevada, and they will be produced at LG Chem’s factory in Nanjing, which is about 200 miles (320 km) west of Shanghai.

It’s not clear if Tesla will be able to use the same chemistry it developed for the 2170 cells produced at Gigafactory 1.

Since Tesla’s inception, Panasonic has always been the automaker’s sole battery suppliers for vehicles with the very small exception of a short-lived Tesla Roadster 3.0 battery replacement program.

Panasonic made cells in Japan and exported them to California for Tesla’s Model S and Model X programs, while the two companies partnered to make the cells for Model 3 at Gigfactory 1 in Nevada.

Over the last few years, Tesla started using battery cells from Samsung SDI and LG Chem for its stationary energy storage products, but Panasonic always had the exclusive contract to supply the automaker with battery cells for its electric vehicles.

More recently, Tesla all but confirmed that it’s going to make its own battery cells with the new battery technology it acquired from Maxwell earlier this year.


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