CATL is in talks with General Motors on a License Royalty Service model partnership, with plans to jointly build an LFP battery plant in North America, according to a local media report.

(Image credit: CnEVPost)

Chinese power battery giant Contemporary Amperex Technology Co Ltd (CATL, SHE: 300750) is reportedly set to build a plant in North America with General Motors (NYSE: GM), similar to its partnership with Ford (NYSE: F).

CATL is in talks with GM (NYSE: GM) about an LRS (License Royalty Service) model tie-up, with plans to jointly build a lithium iron phosphate (LFP) battery plant in North America, a report in Chinese media outlet LatePost said yesterday.

At this stage of the plan, the plant's planned annual capacity will be no less than the one CATL is building with Ford, according to the report.

The site of CATL's plant with GM is likely to be in the US or Mexico, the report said.

Ford announced on February 13, 2023 that it would invest $3.5 billion to build an LFP battery plant in Marshall, Michigan.

The plant, which is wholly owned by Ford, is the first battery plant to be wholly owned by an automaker in the US and would introduce the LFP battery solution to Ford's electric vehicle offerings.

The Ford battery plant, which is expected to enter production in 2026, would have an initial design capacity of about 35 GWh per year and will be able to supply power packs for about 400,000 Ford EVs per year, Ford said at the time.

CATL will provide technical and service support for the production of this LFP battery plant, with Ford responsible for cell and vehicle integration.

CATL's partnership with GM is likely to be similar to its partnership with Ford, with the EV maker responsible for building the battery production line, setting up the supply chain, commissioning line equipment and managing the manufacturing process, the LatePost report noted.

Capital expenditures for the plant are then borne entirely by the carmaker, with CATL not taking a stake in the partnering plant, but rather collecting patent license fees and service fees, according to the report.

In addition to Ford and GM, CATL also partnered with Tesla (NASDAQ: TSLA) in January to expand the energy storage battery production line at Tesla's Nevada battery plant, the report said.

CATL will help Tesla build the line and provide some of the equipment, but will not be involved in managing the manufacturing process for the line, according to the report.

The US passed the Inflation Reduction Act (IRA) in August 2022, which includes a $7,500 tax credit for consumers purchasing qualifying EVs.

Of this, $3,750 in subsidies are available to power cell manufacturers, provided that components that account for more than 50 percent of the cost of the battery are manufactured or assembled in North America.

China has filed a complaint with the World Trade Organization earlier this week IRA EV stimulus and urged the US to correct discriminatory industrial policies.

In order to allow its automotive partners to receive the subsidy, while at the same time gaining access to the US market, CATL negotiated LRS-model partnerships with major US automakers in early 2023, LatePost said, citing a person familiar with the matter.

CATL's revenues and profits would be on a smaller scale under the LRS model than under a model where it builds its own battery production lines and sells batteries, the report noted.

CATL will have two incomes under the model: a one-time fee for selling battery production equipment and building the supply chain; and a certain percentage of patent license fees based on the number of batteries actually produced by car companies.

The benefit of the LRS model, however, is that it reduces CATL's capital expenditures for expanding into the North American market, and the company takes on less risk.

The battery maker's chairman Robin Zeng said in a March 25 media interview that CATL is in talks with more than a dozen automotive companies in Europe and the US about technology licensing cooperation, the report noted.

CATL working with Tesla on fast-charging battery cells