CATL will supply BMW with cylindrical cells from 2025 when the automaker launches its Neue Klasse as it seeks to cut costs and compete with Tesla.

SHANGHAI -- The Chinese battery giant CATL said it will start supplying cylindrical cells to BMW in 2025 to power its new series of electric vehicles.

The battery maker has signed an agreement with BMW in which it is nominated as the supplier of the cylindrical cells for the automaker, CATL said without elaborating.

BMW will use the round cells instead of prismatic ones as it seeks to cut costs. The change will deliver a 30 percent drop in cost savings, people familiar with the plans have said.

Cells typically makeup four-fifths of the price of a battery pack and improving technology and efficiency have typically delivered annual cost reductions.

But cost reductions have been hampered by record price rises of materials such as lithium and nickel, which has challenged automakers' goals of soon selling EVs for a similar margin to combustion-engine cars.

Tesla recently started manufacturing its 4680 lithium-ion batteries, a cylindrical cell with 46 mm diameter and 80 mm length that can hold about five times the energy of its current smaller 2170 cells.

CATL has been supplying BMW with batteries for a decade. The Chinese company is looking at potential battery factory sites in the United States to supply automakers including BMW, with a goal of production beginning in 2026, Reuters reported earlier this month.

BMW will launch a dedicated Neue Klasse (New Class) electric platform by 2025 as it seeks to challenge EV leaders, including Tesla.