Chinese lithium battery manufacturer Eve Energy Co on Sunday denied a Reuters report claiming it's in talks with Tesla about a lithium iron phosphate (LFP) battery supply deal.

The deal, which would see Tesla add Eve Energy to its Shanghai Gigafactory supply chain, is on pace to secure Tesla a second LFP battery supplier after Contemporary Amperex Technology Co (CATL), Reuters said in a report on Friday, citing unidentified sources.

The US-based electric carmaker is seeking to finalize the deal in the third quarter, according to the Reuters report.

In a filing with the Shenzhen Stock Exchange on Sunday, Eve Energy rebutted the Reuters report as groundless.

Eve Energy's Shenzhen-listed shares soared 9.75 percent on Friday, leading a rally of close to 2 percent in the lithium battery sector. CATL's shares ended up 2.25 percent on Friday.

LFP batteries are cheaper to produce, since they use iron instead of nickel and cobalt, the more expensive components of electric vehicle batteries.

Eve Energy, a supplier of batteries to Chinese upstart EV maker Xpeng, disclosed in March its battery supply partnerships with established carmakers BMW and Daimler AG.