Tesla is reportedly looking to build a battery plant in the United States using technology from China's Contemporary Amperex Technology (CATL) for lithium iron phosphate (LFP) cells.
According to people familiar with the matter cited by Bloomberg, Tesla discussed plans involving the Chinese firm with the White House in recent days.
The report claims Tesla wants to pursue a deal similar to one that Ford Motor Company announced last month with CATL in Michigan, namely to construct a plant wholly owned by the US automaker with technology licensed from the Chinese company.
According to some of the sources, Tesla is considering building the battery plant in Austin, Texas to supply its EV assembly plant there. However, a location hasn't been finalized. Locating the LFP cell plant in Austin would allow Tesla to equip the Model Y with US-made LFP batteries.
LFP batteries use a chemistry that is cheaper than the nickel-based batteries used by western automakers especially for their long-range models. Tesla already offers an LFP battery pack in the US on the base Model 3 RWD, but the cells are imported from China, which is the main reason why Tesla's cheapest model will lose full eligibility for federal tax credits starting April 1.
Gallery: Tesla Giga Nevada (Tesla Gigafactory 1)
That said, the planned arrangement with CATL would likely be controversial seeing as one of the main goals of the subsidies instated by the Inflation Reduction Act is to reduce dependence on China when it comes to the production and processing of battery materials by incentivizing a US-based supply chain for EVs.
The auto industry has been lobbying to influence how the US Treasury Department will interpret requirements in the Inflation Reduction Act. One specific clause that automakers have focused on is 30D, which is designed to withhold consumer tax credits for electric vehicles made with a certain amount of China-linked materials in their batteries.
Ford's deal with CATL has drawn criticism from lawmakers including Democratic Senator Joe Manchin of West Virginia and Republican Senator Marco Rubio of Florida, who argue that it allows the Chinese company to benefit from US subsidies. However, Ford has said CATL wouldn't get any US tax dollars from the deal.
As with Ford, Tesla is expected to get some political pushback as well to a deal with CATL, which is probably why the automaker is discussing the plans with the White House first.
Tesla is using the $22 billion in cash it had available at the end of Q4 2022 to expand production and lower costs as it faces increased competition from legacy automakers and EV startups in global markets.