Tesla Model 3's battery to be supplied by German chip maker

Infineon will supply parts to Tesla's upcoming mass-market Model 3 electric car, the German chipmaker said on Tuesday, after being beaten out as an initial supplier by Franco-Italian rival STMicroelectronics  for the coveted deal.

Infineon, which supplies chips to control the batteries and motors in eight out of 10 of the world's top selling electric vehicles, confirmed its parts would go into the Model 3, which is now ramping up for volume production in 2018.

"We do not comment on the individual models, but we will also be present in Model 3," Chief Executive Reinhard Ploss told reporters after Infineon reported third-quarter operating profit just ahead of analysts' consensus forecast.

The German company's products are already in Tesla's Model S sports car, the world's top-selling electric vehicle, but the Model 3 - costing $35,000 in the United States — has the potential to significantly outsell the $60,000 Model S.

STMicroelectronics was first to market with a new class of highly energy efficient 1,200-volt silicon-carbide chips, which brokerage Liberum said helped it win the initial deal to supply power chips for the Model 3. But it predicted Infineon would become the second source of such chips as volumes ramp next year.

Last Friday, Tesla delivered the first 30 Model 3s to employee buyers, part of more than half a million advance reservations.  While its presence in the Model 3 could be a boost, Ploss said most of the demand for Infineon's electric vehicle parts would continue to come from Asia. "Our success is very much dependent on Asia," he said.

The company reaffirmed its projection for 8-11 percent revenue growth for the year ending in September and said its annual operating profit margin, excluding certain items, would be unchanged around 17 percent. Infineon shares, which had slipped in early trading, picked up after Ploss signalled it had a renewed appetite for mergers. The stock was up 1.7 percent at 18.70 euros at 1315 GMT.

Ploss said the company "continues to explore various acquisition options" after its agreed $850 million deal to buy the Wolfspeed power unit of Cree collapsed under US government scrutiny earlier this year.

Ploss told reporters on a conference call that Infineon remained interested in deals in the American market, but would be sure to steer clear of technology the US government considers vital to national security. Revenue for its fiscal third quarter ended in June was roughly in line with expectations, up 12.2 percent on the same period a year ago to 1.83 billion euros. Quarterly operating income, excluding certain items, rose 33 percent to 338 million euros ($400 million), compared with analysts' average forecast of 323 million in a Reuters poll.