Tesla Inc is in talks with Chinese battery maker EVE Energy Co to add the firm to its Shanghai factory supply chain, four people familiar with the matter said, as it seeks to boost procurement of lower cost batteries.
EVE makes lithium iron phosphate (LFP) batteries, which are cheaper to produce because they use iron instead of more expensive nickel and cobalt.
But LFP batteries generally offer a shorter range on a single charge than the more popular nickel/cobalt alternative.
EVE would become the second supplier of LFP batteries to Tesla after China's Contemporary Amperex Technology Co (CATL).
The talks are advanced and the Palo Alto, California-based company is seeking to finalise the partnership in the third quarter, said two of the people.
Shenzhen-listed EVE is now running some final-stage tests of its products for Tesla, said one person.
All sources declined to be named as the discussions are private. Tesla and EVE did not reply to Reuters requests for comment.
($1 = 6.4505 Chinese yuan)