Shenzhen-listed EVE is running some final-stage tests of its products for Tesla, said one person.
Shares of the Chinese battery firm jumped quite 10% in afternoon trade on Friday following the Reuters report about the talks.
All sources declined to be identified because the discussions are private. Tesla and EVE didn’t reply to Reuters requests for comment.
Tesla CEO Elon Musk said this year the corporate was shifting standard range cars to an iron cathode thanks to concerns about the availability of nickel for scaling up battery production.
The talks come as Tesla faces growing competition from Chinese rivals like Nio and Li Auto, also as mounting cost pressure.
Tesla raised the starting price of a typical range Model 3 sedan in China by 1,000 yuan ($155) on Saturday to 250,900 yuan, citing cost fluctuations.
Data showed in the week that China’s factory gate prices rose at their fastest in three and a half years in April because the world’s second-largest economy gathers momentum.
Tesla also faces mounting regulatory pressure in China after consumer disputes over product safety and scrutiny over how it handles data.
The company is using batteries from China’s Contemporary Amperex Technology Co (CATL) and South Korea’s LG Chem for its China-made Model 3 and Model Y cars.
CATL has been the only supplier of the LFP batteries for China-made Model 3 cars with standard driving ranges since late last year.
Three of the sources said Tesla has been working closely with EVE to urge its batteries to satisfy its requirements, because it aims to usher in the supplier as, what one among the sources called a “check and balance” against CATL.
One of the sources said Tesla could start using EVE’s LFP batteries within the China-made Model 3 and Model Y vehicles within subsequent six months and EVE had ramped up production so as to be prepared for the possible partnership.
EVE, which supplies batteries to Chinese EV maker Xpeng Inc , said in March it also has battery supply partnerships with BMW and Daimler AG.