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Tesla is rumored to be planning a new battery factory to produce LFP cells in the US with China’s CATL, the world’s biggest battery manufacturer.

Over the last few years, CEO Elon Musk has said multiple times that Tesla plans to shift more electric cars to LFP batteries in order to overcome nickel and cobalt supply concerns.

Iron phosphate (LFP) batteries, which don’t use nickel or cobalt, are traditionally cheaper and safer, but they offer less energy density, which means less efficiency and a shorter range for electric vehicles.

However, they have improved enough recently that it now makes sense to use cobalt-free batteries in lower-end and shorter-range vehicles. It also frees up the production of battery cells with other, more energy-dense chemistries to produce longer-range vehicles.

The main issue is that LFP battery cell production is currently almost entirely concentrated in China. Therefore, it creates a logistical problem for electric vehicles produced in other markets.

Furthermore, in the US, it creates a problem for automakers trying to take advantage of the new federal tax credit for electric vehicles, which requires that the batteries of electric vehicles be produced in North America in order for buyers to get the full $7,500 credit. It creates a demand to bring LFP production to North America.

Ford has recently announced a plan to partner with CATL, the world’s biggest battery cell manufacturer, to build LFP battery cells at a $3.5 billion factory in Michigan.

Now Tesla is rumored to be doing the same thing. Bloomberg first reported the rumor:

The EV maker discussed plans involving Contemporary Amperex Technology Co. Ltd. with the White House in recent days, said the people, who asked not to be identified revealing private conversations. Tesla representatives sought clarity on the Inflation Reduction Act rules that the Biden administration is finalizing this week, according to some of the people. Rohan Patel, the company’s senior global director of public policy, was among those involved with the discussions, one of the people said.

The report is light on detail, but it states that Tesla is looking at a similar structure to Ford’s own deal with CATL. Texas has also been rumored to be a possible location for the new factory.

The LFP cells would enable Tesla buyers to get the full tax on the base Model 3, which is about to lose the incentive because its cells currently come from CATL’s Chinese factories.

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