Hyunjoo Jin and Subrat Patnaik

(Reuters) – Tesla, (NASDAQ:) Inc plans to move to a more affordable battery for its electric cars. However, it must first resolve political tensions and get a Chinese partner who will build iron-based batteries in close proximity to its U.S. facilities.

The dispute over intellectual property rights, tariffs and Chinese intrusions into Taiwan’s air defense identification area has not been resolved by the two largest economies of the planet. China’s broad regulatory crackdown, which is primarily aimed at technology sectors, may prove to be another problem.

China’s dominance in iron-based batteries production is due to key patents which allowed it to manufacture 95% world Lithium Iron Phosphate(LFP) batteries.

These patents will expire in the near future. Tesla stated that it intends to use LFP batteries globally for its standard-range cars and to bring battery manufacturing closer to its plants.

Drew Baglino (senior vice president for powertrain and energy engineering at Tesla), stated that the goal was to locate all the key components of the cars on the continent. Tesla plans to build factories in Germany and the United States.

“We are working in-house with our suppliers to reach that goal. We don’t just want to get there at the end of assembly, but also as high upstream as we can.”

However, the company didn’t provide any additional information and wasn’t immediately available for comment.

LFP technology can be considered safer and cheaper than nickel-based batteries. However, they don’t have the same energy density to enable cars to go farther with a single charge.

The technology attracted interest from EV producers. Reuters reported June that Apple Inc. (NASDAQ:) had begun talks with China’s CATL, BYD and BYD for LFP batteries. It also wants to have American factories built using the LFP battery.

People said that CATL was reluctant to set up a factory because of political tensions with Washington and Beijing, as well as costs concerns.

According to Sanjiv Malhotra (founder of Sparkz, a battery startup, and former executive at the U.S. Department of Energy), “You can’t discount the entire geopolitical aspect of that,” Reuters was told.

According to the U.S. startup “Our customers don’t want to get caught in this political chainfire,” it said. The company is now looking into setting up production lines that could challenge China’s dominant position.

CATL will probably be more successful manufacturing in China because they have easy access to low-cost raw materials. Craig Irwin, Roth Capital analyst, said that.

To be able to compete with the Chinese low-cost facilities, a U.S. facility will need to have a stronger supply chain.

While President Joe Biden makes it a priority for him to promote the adoption of electric vehicles in combating climate change, storage constraints may remain a significant obstacle to this ambitious plan.

China has the most EV markets worldwide and is the dominant supplier of lithium-ion battery manufacturing materials.

Electric Last Mile Solutions Inc., a commercial electric car company, currently imports CATL’S battery packs. ELMS is talking to the company about the possibility to source batteries at CATL’s U.S. plant.

Elon Musk, Tesla CEO, said last year that LFP battery would be used in its China-made Model 3. This move will free up capacity for Semi trucks and other vehicles that need higher-density long-range lithium-based batteries.

Musk pledged that the technology would be used in even more products.

The rising cost of nickel, cobalt, and aluminum is leading to higher company costs. These materials are used by Tesla to manufacture its batteries.