Tesla is considering partnering with China’s battery giant CATL to bring it into the US supply chain to meet the requirements of the Biden administration’s Inflation Reduction Act. The exact location of the new factory has not yet been determined.

Lithium-ion batteries are critical to electric vehicle production. Tesla is hoping to build a new plant in the US to expand its electric vehicle production capacity. Although Panasonic is Tesla’s main battery supplier and Tesla has its own battery factory in Texas, the existing capacity is still insufficient to meet Tesla’s demand.

Despite offering a federal credit of up to $7,500 for electric car buyers, the Inflation Reduction Act demands that vehicle batteries must be produced in North America, causing a headache for EV manufacturers.

According to sources familiar with the matter, Rohan Patel, global director of public policy and business development at Tesla, is negotiating with the White House to explore a business model similar to Ford’s by commissioning CATL to build a battery factory in the US. However, ownership will still belong to the US automaker so that it can meet eligibility requirements for a subsidy.

CATL is a key partner for Tesla in achieving cost control in the next phase. This is because the Chinese manufacturer’s lithium iron phosphate batteries (LFP) have a relatively low cost and are slightly safer despite lower dynamic performance. Currently, Tesla’s electric vehicles produced in China rely heavily on CATL’s battery supply.

Although the location of the new factory has yet to be announced, it is highly likely that it will be located in Texas or California, as the two states are closer to the EV maker’s assembly lines. However, this partnership may not go as smoothly as expected. Some members of Congress pointed out that this is tantamount to giving American taxpayer money to Chinese companies. Ford emphasized that CATL will not receive any money from American taxpayers. That being said, Tesla, with its troubled political relationships, may face stronger backlash.

 (Photo credit: Tesla)