Battery demand is booming in top global auto market China, where sales of new energy vehicles leapt 182% year-on-year in August, prompting a flurry of investment in new capacity to produce battery ingredients.

XTC New Energy said in a filing it signed a letter of intent with Yaan Economic and Technological Development Zone in Sichuan, southwest China, to build a plant that will eventually produce 100,000 tonnes of lithium iron phosphate and 60,000 tonnes of ternary materials annually.

Ternary refers to the combination of three metals used in lithium-ion battery cathodes, such as nickel, cobalt and manganese.

Yaan is already a lithium production base for Tesla supplier Yahua, while Tianqi Lithium is also headquartered in Sichuan.

The 1.2 billion yuan first phase of the lithium iron phosphate component will have annual output of 20,000 tonnes, XTC New Energy said, noting it does not currently produce that material. It is expected to be put into operation in 2023.

The first phase of the ternary materials component is slated to come on line in 2024 and will also produce 20,000 tonnes per year. It will involve investment of 2.2 billion yuan and include a 10,000 tonnes-per-year nickel and cobalt smelter for battery recycling.

The timing of subsequent investments will be based on market conditions, said XTC New Energy, adding that a feasibility study still needs to be presented to its board and that bank loans would be taken out to fund the project.

XTC New Energy was formerly the battery materials division of Xiamen Tungsten, its biggest shareholder, but has been a company in its own right since 2016.

($1 = 6.4465 Chinese yuan renminbi)

(Reporting by Tom Daly; Editing by Steve Orlofsky)