Chinese battery maker Contemporary Amperex Technology (CATL) and Dutch-based car maker Stellantis Group signed a memorandum of understanding(MoU) on Tuesday outlining plans to form an alliance.

It sees CATL supplying lithium iron phosphate batteries to Stellantis and the pair working together on research and development.

They may also form a joint venture to build a battery plant in Europe.

Stellantis is the world’s fourth largest automotive group. It was formed in 2021 from the merger of Italian–American conglomerate Fiat Chrysler Automobiles and the French PSA Group, which make the Peugeot brand.

It plans to move entirely to EVs by 2030.

CATL makes a third of the world’s EV batteries. It presently supplies Tesla, Peugeot, Hyundai, Honda, BMW, Toyota, Volkswagen, and Volvo.

The two will develop a technology roadmap for EV batteries and try to “strengthen the battery value chain”.

The news about the possible factory was given by Maxime Picat, Stellantis’ head of purchasing. Picat did not disclose any possible locations of the factory, although he said an announcement may be made in the next few months.

If it goes ahead, it will be CATL’s third European factory; the first two are in Germany and Hungary.

The German plant started production in January; the Hungarian factory is planned to have a capacity of 100GWh, with the first phase of construction already under way and expected to be completed in about two years. In the first half of this year, CATL’s overseas revenue accounted for 35% of its total revenue.

In February of this year, CATL and Ford announced that they will jointly build a battery factory in Michigan, USA with a total investment of $3.5bn. Ford owns the new factory while CATL provides construction and operational services, as well as licensing battery patent technology.

The Financial Times notes that the deal is coming about despite repeated warnings from Carlos Tavares, Stellantis’ chief executive, about the risk to Western carmakers from Chinese brands and technology. It says the agreement reflects the pressure on Stellantis to lower the cost of its cars and, at the same time, increase its reliance on Chinese technology.