LG Energy Solution lands $4.3 billion Tesla battery deal
South Korean battery manufacturer LG Energy Solution has signed a substantial $4.3 billion contract to supply Tesla with lithium iron phosphate (LFP) batteries for energy storage systems, Reuters reported. The three-year deal represents a significant move by Tesla to reduce its reliance on Chinese suppliers amid mounting tariff pressures.
The contract, which runs from August 2027 to July 2030, will see LG Energy Solution supplying batteries from its Michigan factory in the United States. The deal includes provisions for potential extension of up to seven years and increased supply volumes, subject to future negotiations between the companies.
Initially announced without naming the customer, LG Energy Solution confirmed the contract on Wednesday but cited confidentiality obligations in declining to identify Tesla as the purchaser. The South Korean firm, whose major clients include Tesla and General Motors, had not specified whether the batteries would be used in vehicles or energy storage applications.
The agreement comes as Tesla faces significant challenges from US tariffs on Chinese imports. Chief Financial Officer Vaibhav Taneja said in April that tariffs had an "outsized" impact on the company's energy business, adding: "We will also be working on securing additional supply chain from non-China-based suppliers, but it will take time."
LG Energy Solution holds a competitive advantage in the US market as one of the few domestic producers of LFP batteries, a segment traditionally dominated by Chinese manufacturers. The company began LFP battery production at its Michigan facility in May and is considering converting some electric vehicle battery lines to serve energy storage systems in response to slower EV demand.
The deal coincides with Tesla's broader energy storage expansion efforts, as the segment accounts for just over 10% of the company's revenue but has shown strong growth despite supply chain challenges. Tesla CEO Elon Musk recently emphasised the massive scale of future battery demand, saying: "Energy is growing really well despite headwinds from tariffs and various supply chain challenges. I think not that many people appreciate just how gigantic the scale of battery demand is."
Samsung Securities Senior Analyst Cho Hyun-ryul noted "Other players, including South Korean firms like Samsung SDI and SK On, have yet to enter the US LFP market, allowing LGES to enjoy a first-mover advantage."
The deal coincides with Tesla's broader energy storage expansion efforts, as the segment accounts for just over 10% of the company's revenue but has shown strong growth despite supply chain challenges. Tesla CEO Elon Musk recently emphasised the massive scale of future battery demand during an earnings call.
