Tesla is in advanced stages of talks to use batteries that contain no cobalt from Contemporary Amperex Technology (CATL), China's largest automotive lithium-ion battery maker, in cars made at its China plant, Reuters reported citing people familiar with the matter said.

Adoption would mark the first time for Tesla to include so-called lithium iron phosphate (LFP) batteries in its lineup.

Tesla has been talking to CATL for more than a year to supply LFP batteries that will be cheaper than its existing batteries by a “double-digit percent,” said a person directly involved in the matter.

EV manufacturers usually use nickel-cobalt-aluminum (NCA) or nickel-manganese-cobalt (NMC) batteries on passenger vehicles because of their higher energy density, which is critical in determining how far an EV can drive on single charge.

To boost the density and safety of its LFP batteries, CATL has been working on its so-called cell-to-pack technology. It was not clear to what extent Tesla intends to use LFP batteries but the automaker has no plans to stop using its current NCA batteries, said one of the people.

CATL shares went up 1.64 percent today.

Earlier this month, CATL issued an announcement saying that it intends to sign an agreement with Tesla to supply lithium-ion power battery products to Tesla, and the purchase volume of products must be subject to Tesla's subsequent specific purchase orders.

Tesla's cooperation with CATL has been rumored for a long time. It has been reported that in late August 2019, Tesla CEO Elon Musk went to Shanghai to meet with CATL executives for about 40 minutes.

Subsequently, the two companies reached a non-binding agreement, and the final battery supply agreement is expected to be signed in mid-2020, and batteries purchased from CATL will be used for Model 3 models.

At present, the Model 3 used in China is still powered by Panasonic and LG, using the latest 21700 battery. Its energy density is about 300Wh/Kg, which is about 20% higher than the 205Wh/kg of the original Panasonic 18650 battery. This battery is also the battery with the highest capacity density in mass-produced passenger cars.

According to public data, CATL will achieve 32 GWh of installed power in 2019, a year-on-year increase of 37%; supporting 120 domestic car companies, including 9 customers supporting more than 1GWh, and a market share of 51.76%.

With the increase of Tesla's adoption of Chinese suppliers and the ramp-up of production capacity, the price of Tesla's China-made models will still have room to go down in the future, Cui Dongshu, secretary general of the China Federation of Vehicle Industry Associations said.

Cui Dongshu believes that "with the increase of Tesla's manufacturing rate in China and the ramp-up of production capacity, there is still a lot of room for the price of Tesla's Chinese-made models in the future.

He predicts that the price of Chinese-made Model 3 models will drop to 250,000 yuan in the second half of this year, a drop of nearly 20%.