Locating the factory in Shanghai will put it close to Tesla Inc's Chinese production base after it began supplying batteries for the U.S. automaker's Model 3 cars in China last year.
CATL hopes to rapidly expand that relationship, aiming to become its biggest supplier in the near future by providing half of the battery cells Tesla uses globally in electric vehicles and roof energy storage, said a senior source at the Chinese company.
The new plant would be able to make 80 gigawatt-hours of battery cells a year, a second person said, which would come on top of 69.1GWh in current production capacity and another 77.5GWh under construction.
CATL has been in talks with the Shanghai government about building the factory, the people said, adding that the location will also enable the company to draw upon a larger and more diversified talent pool than its headquarters in Ningde in southeastern China.
It was not immediately clear when a final agreement might be reached or when CATL hopes to have the new plant up and running.
CATL said that it is in talks with Tesla about more collaboration and Tesla is seeking help from the company on battery solutions, but declined to comment on any plans for additional production capacity.
The Shanghai government and Tesla did not immediately respond to a request for comment.
The expansion plan is likely to add to competitive pressure on Tesla's other battery suppliers, Japan's Panasonic Corp and South Korea's LG Energy Solution, a unit of LG Chem.
Many battery makers are ramping up production to meet soaring worldwide demand as car makers accelerate their shift to electric vehicles to comply with tougher emission rules aimed at tackling global warming. Tesla in April also urged its suppliers to produce as much as they can.
In March, LG Energy Solution said it plans to invest more than $4.5 billion in its U.S. battery production over the next four years.
At 80GWh per year, the new Shanghai plant would be capable of powering some 800,000 electric cars, analysts said.
The plant is likely to be located south of Tesla's Shanghai factory in Lingang, Pudong New Area, said the second source, adding it will hire 5,000 workers and manufacture cell-to-chassis (CTC) batteries.
The new technology integrates cells directly onto an EV's frame to increase the energy density of battery systems. CATL Chairman Zeng Yuqun has said electric vehicles could attain driving ranges of over 800 km (500 miles) with CTC technology, adding that CATL aims to launch the technology before 2030.
By comparison, CATL's cell-to-pack technology currently used in Tesla's Model 3 cars gives the vehicles a driving range of around 468 km per charge.
CATL is also considering setting up a research centre and a global sales and operational centre in Shanghai due to difficulties in retaining and hiring staff in Ningde, the source said.
Shenzhen-listed CATL closed down 2.3% on Thursday, valuing the battery maker at some $155 billion. The broader ChiNext Composite index fell 1.3%.
Its shares have risen some 18% this year as sales soar.
CATL, whose clients also include Volkswagen, General Motors, BMW and Daimler as well as Chinese auto makers, nearly quadrupled its battery sales to 21.4 GWh in the first four months of 2021, according to SNE Research.
LG Energy Solution saw sales jump 133% to 14.2 GWh during the same period while Panasonic's sales climbed 51% to 9.7 GWh, the report said.
(Reporting by Tony Munroe and Zhang Yan; Additional reporting by Yilei Sun and Hyunjoo Jin; Editing by Miyoung Kim and Edwina Gibbs)