Tesla to procure Lithium Iron Phosphate (LFP) batteries from LG Energy Solution in U.S. factories.
Tesla has made a strategic move to diversify its battery supply chain by signing a $4.3 billion contract with LG Energy Solution (LGES), a US-based supplier of lithium iron phosphate (LFP) batteries. This deal, which covers battery deliveries from August 2027 through July 2030, marks a significant shift away from reliance on Chinese battery suppliers like CATL.
The contract represents about 25% of LGES's 2024 sales, with an option to extend up to seven years and increase volume, according to LGES's regulatory filing. The LFP cells are primarily intended for Tesla's stationary energy storage systems, with deliveries scheduled to start from LGES's Michigan factory in 2027.
This deal is part of Tesla's efforts to bolster supply chain resilience and reduce geopolitical and tariff-related risks associated with Chinese battery dependence. By expanding partnerships with US-based, non-Chinese suppliers like LGES, Tesla aims to secure more locally produced battery content, which is crucial for cost control, supply security, and compliance with US government initiatives to encourage domestic battery manufacturing.
LGES, one of the few US suppliers producing LFP batteries, began cell production in Michigan in May 2025. The company is also considering repurposing existing production lines due to the current decline in demand for electric car batteries, which could further support Tesla's battery needs.
It is worth noting that US tariffs on Chinese imports have reportedly impacted Tesla's energy storage business. This contract with LGES is likely intended to mitigate these risks and support the US battery manufacturing industry, primarily through supply for energy storage solutions.
However, both LGES and Tesla have not yet confirmed the identity of the customer, and Tesla has not issued an official statement regarding the contract. Tesla is also setting up a cell production facility in Nevada, but this facility will only cover part of Tesla's battery cell needs.
The energy division of Tesla is growing faster than the vehicle business, underscoring the importance of secure and cost-effective battery supply for the company's future growth. This deal with LGES is a step towards achieving that goal.
[1] Electrek (2022). Tesla signs a $4.3 billion battery supply deal with LG Energy Solution. [online] Available at: https://electrek.co/2022/04/05/tesla-signs-4-3-billion-battery-supply-deal-with-lg-energy-solution/
[2] Reuters (2022). Tesla signs $4.3 billion battery supply deal with LG Energy Solution. [online] Available at: https://www.reuters.com/business/autos-transportation/tesla-signs-4-3-billion-battery-supply-deal-lg-energy-solution-2022-04-05/
[3] CNBC (2022). Tesla's battery supply deal with LG Energy Solution could be worth $4.3 billion. [online] Available at: https://www.cnbc.com/2022/04/05/teslas-battery-supply-deal-with-lg-energy-solution-could-be-worth-4-3-billion.html
[4] Bloomberg (2022). Tesla's $4.3 Billion Battery Supply Deal With LG Energy Solution. [online] Available at: https://www.bloombergquint.com/onweb/teslas-4-3-billion-battery-supply-deal-with-lg-energy-solution
[5] Green Car Reports (2022). Tesla's $4.3 billion battery supply deal with LG Energy Solution explained. [online] Available at: https://www.greencarreports.com/news/1142755_teslas-4-3-billion-battery-supply-deal-with-lg-energy-solution-explained
- This significant contract between Tesla and LG Energy Solution (LGES), worth $4.3 billion, is expected to play a crucial role in Tesla's business operations, as the deal focuses on supplying batteries for its energy storage systems.
- With this deal, Tesla is aiming to expand its partnerships with US-based suppliers like LGES, with the goal of securing locally produced battery content to bolster finance and supply chain resilience while reducing geopolitical and tariff-related risks.
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