LG Energy Solution Signs USD 4.3 Billion Deal to Supply Tesla with Storage Batteries

South Korea’s LG Energy Solution has signed a USD 4.3 billion agreement to supply lithium iron phosphate (LFP) batteries to Tesla Inc. for use in energy storage systems, according to a person familiar with the matter.

As per reports, the deal comes as Tesla works to diversify its battery supply chain and reduce reliance on Chinese imports, which are subject to rising US tariffs.

The batteries will be produced at LG’s plant in Lansing, Michigan, which began manufacturing LFP cells in May. The company is among the few US -based producers of this battery chemistry, traditionally dominated by Chinese firms with limited US presence.

Reports further indicate that while LG Energy Solution confirmed the signing of a multi-billion-dollar contract for lithium iron phosphate (LFP) batteries on Wednesday, the company did not disclose the buyer or specify whether the batteries would be used for electric vehicles or energy storage systems, citing confidentiality obligations. Tesla also declined to comment.

The agreement spans from August 2027 to July 2030 and includes options to extend the duration by up to seven years and increase supply volumes, depending on further discussions.

The deal aligns with LG’s strategy to shift focus toward energy storage systems amid slowing global demand for electric vehicles. The company recently announced plans to convert some EV battery production lines in the US to meet the growing demand for energy storage, driven in part by the expansion of AI-powered data centers.

Tesla Chief Financial Officer Vaibhav Taneja noted in April that US tariffs on Chinese imports have had a disproportionate impact on the company’s energy business, prompting efforts to secure alternative suppliers outside China.

Meanwhile, Tesla also announced this week a separate USD 16.5 billion agreement to source semiconductor chips from Samsung Electronics’ Texas facility, further deepening ties with South Korean firms amid shifting trade dynamics.

South Korean officials are in ongoing discussions with US counterparts to resolve trade issues ahead of the August 1 deadline for a new round of 25% tariffs on certain imports from South Korea.

Analysts say LG's early production of LFP batteries in the US gives it a first-mover advantage. “Other players, including Samsung SDI and SK On, have yet to enter the US LFP market,” said Cho Hyun-ryul, senior analyst at Samsung Securities.

Tesla’s energy storage and generation division accounts for just over 10 percent of its revenue but has emerged as a growth driver amid softening EV sales. CEO Elon Musk recently said the scale of global battery demand remains underappreciated, despite ongoing challenges with tariffs and supply chains.

Tesla has announced plans to begin LFP cell production at its Nevada facility by the end of the year, though that output is expected to meet only a fraction of its demand.