Tesla in advanced talks with LG Chem about battery supply in China: source

(Reuters) – US electric car manufacturer Tesla Inc ( TSLA.O ) is in advanced talks with South Korea's LG Chem Ltd ( 051910.KS ) to procure batteries for vehicle to be made in the Shanghai plant, said a person familiar with the matter.

The move represents a push from Tesla to diversify the sources of the key component of their electric vehicles. Japan's Panasonic Corp ( 6752.T ) is currently Tesla's exclusive supplier of battery cells for new cars.

Bloomberg reported on Friday that the California-based EV manufacturer has agreed to buy batteries from LG Chem, citing people familiar with the matter. The batteries made by the South Korean chemical company will initially be used in Model 3 cars to be manufactured in the plant near Shanghai, the report said.

LG Chem expands China's battery capacity and modifies some manufacturing plants to make another type of auto battery, according to the source.

The company today mainly manufactures bag-type auto batteries and other types of batteries, but as a major battery manufacturer, it is not difficult to rebuild facilities to make cylindrical auto batteries that Tesla uses, source and familiarize people with the matter. added.

The source, who spoke on condition of anonymity as the calls are not public, said Tesla will still likely use Panasonic batteries in the initial phase of production and the source from other suppliers, including local names in the future.

Tesla did not immediately respond to Reuters request for comment. LG Chem declined to comment.

LG Chem has signed battery supply agreements with China's Huayou ( 603799.SS ) and Tianqi ( 002466.SZ ) as the South Korean battery manufacturer is trying to expand its foothold in China. It said it would set up a joint venture with a unit of China's Geely [GEELY.UL] on batteries.

China has scrapped the so-called "white list" of recommended battery suppliers, which did not include foreign companies when it was first released in 2015 to spur a domestic battery sector, a decision foreign companies said could open the world's largest electric market vehicle batteries.

Panasonic has stated that it can supply batteries to Tesla's Chinese plants either from Japan, the United States or China.

Tesla chief Elon Musk said in November that the US company would produce all its battery modules and packages at the Shanghai plant and planned to diversify the sources.