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Why Tesla is cutting the price on China-made Model 3 sedans

Tesla’s new powertrains are expected to include a cobalt-free lithium iron phosphate battery made by  Contemporary Amperex Technology Co. the people familiar said, asking not to be identified because those details are private.

Reuters, citing people familiar with the matter, reported that the cobalt-free batteries will be in the standard-range Model 3 sedans.

The battery has a cheaper mix of raw materials and could help Tesla compete with domestic and international rivals that are flooding the Chinese market with new models.

A representative for Tesla in China declined to comment specifically on the battery. But after the prices were changed on its website, Tesla released a statement saying the new Model 3 benefits “from advanced software technology and efficiency improvement.”

The vehicles produced at Tesla’s Shanghai plant have thus far used nickel-cobalt batteries made by Panasonic Corp. of Japan and South Korea’s LG Chem. Cobalt is expensive because about half of the world’s supply comes from the Democratic Republic of Congo, where longstanding corruption and governance issues are compounded by the use of child labor in mining and high taxes on the metal.

Tesla also is partnering with CATL, according to a February filing by the Chinese company. CATL supplies different types of batteries to various other automakers including Daimler, Hyundai Motor Co., Toyota Motor Corp. and Volkswagen Group.

LFP batteries cost about 20 percent less to make than nickel-cobalt battery cells, according to BloombergNEF.

Iron batteries will “still be good” for Tesla’s mid-range products, CEO Elon Musk said at his company’s Battery Day technology showcase earlier this month. He added Tesla doesn’t want to be constrained by limited production capacity for nickel-cobalt batteries.

Cumulative registrations this year of Chinese-made Model 3s, which debuted in January, reached almost 70,000 vehicles as of the end of August, according to state-backed China Automotive Information Net.

Reuters contributed to this report.

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