Stellantis and China’s Contemporary Amperex Technology (CATL) are set to work together to supply lower-cost lithium-iron-phosphate batteries for electric vehicles in Europe and will weigh a deeper partnership.

The maker of Peugeot cars and CATL, as the Chinese giant is known, are also considering a joint venture where both partners contribute equally, the companies said on Tuesday (Nov 21). In addition, the manufacturers said they’re seeking a long-term collaboration to identify opportunities to strengthen the battery value chain.

As part of the partnership, Stellantis and CATL plan to build an LFP battery factory in Europe, Maxime Picat, Stellantis’ executive vice-president and global head of purchasing and supply chain, said in a media call. But no decision has yet been made on the factory’s location in Europe, he added.

Lithium-iron-phosphate batteries have been gaining traction with automakers because they are cheaper and more stable than nickel-based batteries used in most EVs. While they have a lower energy density that results in shorter driving distances, their performance has been improving with technology advances.

The pact adds to Stellantis chief executive officer Carlos Tavares’ push for closer ties with Chinese companies. Last month, the company struck a 1.6 billion dollar deal for a stake in Chinese EV maker Zhejiang Leapmotor Technology to help plug a hole in a crucial market in the global EV transition.

China’s battery makers supply some 80 per cent of cells globally, while Chinese firms also have significant mining and processing facilities both at home and abroad. The country’s stranglehold on the EV supply chain has become a source of geopolitical tension with the US and Europe.