By Yilei Sun and Hyunjoo Jin
SEOUL/SHANGHAI Aug 23 (Reuters) - U.S. electric vehiclemaker Tesla Inc is in advanced talks with South Korea'sLG Chem Ltd to source batteries for vehicles to bemade in its Shanghai plant, a person familiar with the mattersaid.
The move represents a push by Tesla to diversify sources ofthe key component for its electric vehicles from its exclusivesupplier, Japan's Panasonic Corp.
Another source said LG Chem agreed to supply batteries forTesla's China plant, without elaborating.
LG Chem is expanding its China battery capacities andmodifying some manufacturing facilities in Nanjing to make adifferent type of auto battery, according to the first source.
The company currently mainly makes pouch-type autobatteries, but as a major battery maker, it is not hard for itto revamp facilities to make cylindrical auto batteries thatTesla uses, the source and separate people familiar with thematter added.
The source said Tesla is still likely to use Panasonicbatteries in the initial phase of production and source fromother suppliers including local names in the future.
A third person said Tesla may source batteries from CATLlater, as the Chinese battery maker does not havemuch experience in making cylindrical batteries used by Tesla.
All of the sources declined to be identified because of theconfidentiality of the deal.
Tesla did not immediately respond to Reuters' request forcomment. LG Chem and CATL declined to comment.
Tesla Chief Executive Elon Musk said in November the U.S.company would manufacture all its battery modules and packs atthe Shanghai factory, which will make Model 3 and Model Y cars,and planned to diversify its sources.
LG Chem has signed battery material supply agreements withChina's Huayou and Tianqi, as the SouthKorean battery maker is trying to expand its foothold in China.It said it would set up a joint venture with a unit of China'sGeely on batteries.
China has scrapped its so-called "white list" of recommendedbattery suppliers, which did not include foreign firms when itwas first published in 2015 to spur a domestic battery sector, adecision foreign companies said could open up the world'sbiggest market for electric vehicle batteries.
Panasonic has said it could supply batteries to Tesla'sChinese plant either from Japan, the United States or China.(Reporting by Yilei Sun in Shanghai, Hyunjoo Jin in SEOUL;Additional reporting by Aakriti Bhalla in Bengaluru and Ju-minPark in Seoul; Editing by Sherry Jacob-Phillips/ MuralikumarAnantharaman and Emelia Sithole-Matarise)