Tesla awards LG Energy a $4.3 billion contract for lithium iron phosphate (LFP) batteries, signifying a move away from CATL.

Tesla awards LG Energy a $4.3 billion contract for lithium iron phosphate (LFP) batteries, signifying a move away from CATL.

Tesla Secures $4.3 Billion LFP Battery Deal with LG Energy Solution

Tesla has announced a significant deal with South Korean battery manufacturer LG Energy Solution, worth $4.3 billion over three years, starting in August 2027. This deal marks a strategic move by Tesla to secure a substantial domestic supply of batteries for its energy storage systems (ESS) and to avoid tariff-related costs associated with imports from China.

Under the terms of the agreement, LG Energy will supply lithium iron phosphate (LFP) cells from its U.S. factory in Michigan. The batteries, to be produced in the U.S., are expected to be used in energy storage systems, not vehicle batteries. This deal is likely to reduce Tesla’s dependency on China-based CATL, the dominant supplier of LFP batteries, amid ongoing U.S. tariffs and geopolitical tensions.

The contract includes provisions to extend the contract period up to seven years and to increase the supply volume accordingly. The commercial production of LFP batteries by LG Energy in its Tennessee plant is expected to begin by late 2027. LG Energy is converting its production lines for high-nickel cobalt manganese (NCM) models in Tennessee into those for LFP batteries, optimized for energy storage system (ESS) applications.

This deal reflects LG Energy’s response to slowed demand for conventional automotive cells by pivoting aggressively into energy storage projects, especially in the U.S. market. LG Energy’s manufacturing plants in the U.S., spanning Ohio, Tennessee, and Michigan, are dedicated to LFP batteries optimized for ESS applications.

The contract value and duration between LG Energy and Tesla may be subject to change. However, industry sources have identified Tesla as the unnamed client in LG Energy's $4.3 billion deal. This partnership with LG Energy Solution is a key move for Tesla to localize battery supply, reduce costs, and enhance supply chain security, while indirectly diminishing CATL’s role in Tesla’s battery ecosystem.

This deal also marks Tesla's move away from its long-time supplier, China's Contemporary Amperex Technology Co. Ltd. (CATL), the world's largest LFP battery maker. As the Trump administration is accelerating its supply-chain decoupling from China, LG Energy is scaling up production in the U.S.

During its second-quarter conference call, LG Energy expressed expectations for meaningful profit growth in the second half, with ESS battery sales offsetting sluggish sales of EV batteries. LG Energy did not disclose the client's name, citing a confidentiality agreement.

In summary, Tesla’s partnership with LG Energy Solution is a strategic move to secure a substantial domestic supply of batteries for its energy storage systems, reduce tariff exposure, and strengthen its domestic supply chain. This deal is expected to have a significant impact on Tesla’s relationship with CATL and the broader battery industry.

This deal, worth $4.3 billion, signifies Tesla's strategic shift towards securing domestic battery supplies from LG Energy Solution, possibly reducing its dependence on China-based CATL. Simultaneously, this partnership within the technology industry isexpected to have a significant impact on Tesla's business and finance, not only in terms of battery costs but also in enhancing supply chain security.

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