New information: Eve Energy Co., which makes lithium iron phosphate batteries, said a Reuters report that it’s in supply deal talks with Tesla Inc. is “unfounded.”

The company didn’t have any business communications with Tesla over the batteries, it said in a statement posted on Shenzhen Stock Exchange website on Sunday.

Tesla is in talks with Chinese battery manufacturer EVE Energy to supply LFP batteries for Giga Shanghai. This move is aimed at increasing the number of purchased batteries, both in connection with growing production as well as to stimulate the purchase of batteries at lower prices. 

EVE Energy manufactures Lithium Iron Phosphate (LFP) batteries. They are cheaper to produce because they use iron instead of the more expensive nickel and cobalt, the mining of which raises a number of questions. EVE will become Tesla's second LFP battery supplier after China's Contemporary Amperex Technology (CATL).

Two sources familiar with the case told Reuters that negotiations between the manufacturers are progressing and they are looking to complete the partnership in Q3. According to the released information, EVE is conducting final tests of its products for Tesla. All negotiations are currently private.

In February, Tesla CEO Elon Musk said that all Tesla Standard Range vehicles will be manufactured with LFP batteries. This step will help to avoid difficulties with the supply of nickel, which reserves are rare and limited. Nickel supply is a challenge in increasing the production of lithium-ion cells. In the past, Tesla has already talked about abandoning batteries with a nickel cathode. For this reason, the company was forced to take appropriate action.

Tesla is currently using the Chinese CATL and South Korean LG Chem batteries for its Model 3 and Model Y cars made in China. However, CATL has been the only LFP battery supplier for the Giga Shanghai-made Standard Range Model 3. EVE should increase the number of batteries Tesla purchases as vehicle production at Giga Shanghai continues to grow steadily.

Tesla is working closely with EVE to bring its batteries in line with its requirements. One source said Tesla could start using EVE LFP batteries in China-made Model 3 and Model Y vehicles over the next six months, and EVE has ramped up production to prepare for a possible partnership.

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