Key Takeaways
- Tesla (TSLA) has signed a substantial $4.3 billion contract with South Korea's LG Energy Solution (373220.KS) to procure lithium iron phosphate (LFP) batteries, primarily for its energy storage systems.
- The agreement spans from August 2027 to July 2030, with an option for extension and increased supply, signaling a long-term strategic partnership.
- LG Energy Solution will supply these LFP batteries from its U.S. factory in Michigan, which began LFP production in May, aligning with U.S. efforts to localize battery supply chains and benefiting from Inflation Reduction Act incentives.
Tesla (TSLA) has secured a significant $4.3 billion deal with LG Energy Solution (373220.KS) for the supply of lithium iron phosphate (LFP) batteries. This strategic agreement is primarily aimed at bolstering Tesla's rapidly expanding energy storage business. The contract, which is set to commence in August 2027 and run through July 2030, also includes provisions for potential extensions and increased supply volumes, indicating a deepening collaboration between the two companies.
The LFP batteries will be sourced from LG Energy Solution's U.S. manufacturing facility in Michigan, where the company initiated LFP battery production in May 2025. This domestic production is a critical aspect of the deal, as it aligns with the U.S. government's push to localize battery supply chains and reduce reliance on foreign, particularly Chinese, suppliers. The move is also expected to allow LG Energy Solution to capitalize on incentives provided by the U.S. Inflation Reduction Act (IRA), which encourages domestic manufacturing of clean energy components.
While LG Energy Solution did not explicitly name Tesla as the customer due to confidentiality agreements, sources familiar with the matter have confirmed the electric vehicle giant as the recipient of this substantial battery supply. The adoption of LFP battery technology by Tesla for its energy storage systems underscores the growing preference for LFP due to its cost-effectiveness, longer cycle life, and improved safety profile compared to other battery chemistries. This partnership further highlights Tesla's commitment to scaling its utility-scale energy storage solutions, such as the Megapack.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.