Tesla has held talks with China’s Tianjin Lishen to supply batteries for the US electric carmaker’s upcoming Shanghai factory, Reuters reports.
The two firms signed a preliminary agreement, the news agency said, citing people with knowledge of the matter.
The companies have yet to decide how large an order Tesla would place, and Lishen is still working out what battery cell size Tesla would require, according to the report.
Details of the agreement were unclear, Reuters said, noting that a preliminary pact could refer to mere acknowledgment or a statement of intent.
The talks come as Tesla looks to localize battery cell production amid mounting competition in China, where a trade war is increasing the cost of US imports.
Tesla said it received quotes from Tianjin Lishen to supply batteries for the Shanghai plant but did not proceed further.
However, a Reuters source insisted that a preliminary agreement was signed. Japan’s Panasonic Corp is currently Tesla’s exclusive battery cell supplier.
Tesla CEO Elon Musk had said earlier that his firm would manufacture all its battery modules and packs at the Shanghai factory and that it plans to diversify its sources.
“Cell production will be sourced locally, most likely from several companies (incl Pana), in order to meet demand in a timely manner,” Musk said in a tweet in November.
Panasonic said in a statement it is studying various possibilities with regards to Tesla’s Shanghai plant, but nothing had been decided.
Other battery makers in the running for contracts could include Contemporary Amperex Technology Co and LG Chem.
Tesla broke ground on the US$2 billion so-called Gigafactory, its first in China, earlier this month and plans to begin making Model 3 electric vehicles there by the end of the year.
Musk has said the factory will produce “more affordable” vehicles for the Chinese auto market.
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