Tesla has signed a $4.3 billion battery supply agreement with LG Energy Solution, aiming to reduce reliance on Chinese components and soften the blow of US tariffs.
Reuters broke the story, citing a source familiar with the matter. LGES confirmed the value and timeline of the contract but did not name the buyer, citing confidentiality obligations. Tesla has not commented publicly.
Behind the three-year battery pact
The three-year contract runs from August 2027 to July 2030 and includes an option to extend for up to seven additional years, according to Reuters.
The agreement covers lithium iron phosphate (LFP) batteries intended for Tesla’s energy storage products, not its vehicles. It also allows for potential increases in supply volumes based on future demand.
The batteries will be produced at LGES’s plant in Michigan, aligning with Tesla’s efforts to move sourcing away from China as trade tensions mount. “U.S. tariffs had an outsized impact on our energy business,” Tesla CFO Vaibhav Taneja said earlier this year, according to Reuters.
AI demands steer LG toward battery leadership
LG Energy Solution has pulled ahead in the US battery supply race, producing LFP batteries at commercial scale while rivals remain on the sidelines. LFP cells, once sourced almost entirely from China, are now at the center of major energy storage deals in the US.
With EV sales slowing, LG is pushing deeper into the storage market amid rising energy demand from data centers and artificial intelligence infrastructure.
LG advanced on battery tech Tesla once chased
Tesla and LG Energy Solution have crossed paths before, most notably in their efforts to improve battery manufacturing. In 2019, Tesla acquired Maxwell Technologies, aiming to develop dry-coating, a process meant to simplify how battery electrodes are made. According to Bloomberg, Tesla managed to apply it to anodes but struggled with cathodes, where the process is harder to scale.
LG says it has developed a method that works on both. The company claims the technique can lower battery manufacturing costs by up to 30%, while also cutting energy use and reducing the factory space needed. Bloomberg reported that LG has been developing the process for more than a decade.
While the dry-coating process has not been linked to the reported deal, its development helps explain why LG is drawing attention as a key energy storage supplier. As AI strains power grids worldwide, battery systems may prove essential to meeting its massive energy demands.
For Tesla, partnering with LG may offer more than short-term supply relief: It aligns the company with a US-based producer that is also solving technical challenges that Tesla once tried to overcome.
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