- Tesla signed a $4.3 billion deal with LGES for U.S.-made LFP batteries.
- LGES will manufacture the batteries at its factory in Michigan.
- The batteries are meant for Tesla’s energy storage systems, not electric vehicles.
Tesla has signed a $4.3 billion deal with LG Energy Solution (LGES) for a three-year supply of lithium iron phosphate batteries, Reuters reported. The South Korean company would manufacture the batteries at its Michigan factory to supply Tesla’s energy storage business with a steady flow of cells from August 1, 2027, to July 31, 2030.
Earlier this week, LGES said it had signed a big contract with an overseas client, but left out the client’s name. According to a person familiar with the matter quoted by Reuters, that company is Tesla, which is reportedly looking to reduce its reliance on Chinese imports due to tariffs.
Back in April, Vaibhav Taneja, Tesla’s Chief Financial Officer, said that import tariffs on Chinese battery components had an “outsized” impact on its energy business because it mainly sources LFP batteries from China. "We will also be working on securing additional supply chain from non-China-based suppliers, but it will take time," Taneja added.
LGES is one of the few LFP battery makers in the United States. It opened its Michigan factory in May, and it’s working with General Motors to supply the automaker with affordable LFP batteries for upcoming EVs such as the new Chevrolet Bolt. Ford is also investing heavily in the battery chemistry that has long been dominated by China. Tesla is also working on its own LFP cell manufacturing facility in Nevada, which should be operational by the end of the year, but the company said that it will likely account for a small portion of demand.
"Other players, including South Korean firms like Samsung SDI and SK On, have yet to enter the U.S. LFP market, allowing LGES to enjoy a first-mover advantage," said Cho Hyun-ryul, a senior analyst at Samsung Securities, for Reuters. "While rivals have announced plans, LGES remains the only one actively producing at scale."
The South Korean company’s deal with Tesla is equivalent to roughly a quarter of its annual sales, according to the regulatory filings uncovered by The Korea Herald. Despite the contract’s initial timespan of three years, its period and value can change based on further talks with Tesla.
Compared to traditional lithium manganese nickel cobalt, lithium iron phosphate batteries have a lower energy density but are known for enhanced safety, lower manufacturing costs and increased longevity.
