Tesla enters a partnership with LG for the production of LFP batteries in the US, as part of a $4.3 billion agreement
Tesla has announced a significant partnership with LG Energy Solution (LGES) worth $4.3 billion, securing a long-term supply of lithium iron phosphate (LFP) batteries for its energy storage systems. This deal is set to boost US domestic supply chains, reduce Tesla's reliance on Chinese suppliers, and support the growth of its energy storage business.
The partnership will see LGES manufacturing LFP batteries at its Michigan facility from August 2027 through July 2030, with options to extend the agreement by up to seven years and increase volumes. This move is strategic as it allows Tesla to bypass costly US tariffs on Chinese battery imports, lowering supply chain risks and costs while supporting local manufacturing.
The energy storage market is growing faster than Tesla's vehicle business, reflecting the increasing demand for stationary energy storage systems. Securing a stable and large LFP battery supply is critical for scaling up the Megapack systems that provide grid-level storage and clean energy solutions. The use of LFP chemistry is particularly suited for stationary energy storage due to its safety, longevity, and cost-effectiveness compared to other lithium-ion chemistries.
The deal with LGES will help Tesla meet the Inflation Reduction Act (IRA) domestic content requirements for subsidies and incentives. In the second quarter of 2025, Tesla's energy division hit record deployments, meaning Tesla is installing more Megapacks than ever. However, revenues were slightly down, suggesting a need to make energy storage more cost-efficient.
A single Tesla Megapack unit weighs 38 tons and can store over 3.9 MWh of energy, enough to power approximately 3,600 households for one hour. Tesla Megapacks can store excess renewable energy and dispatch it when needed, balancing grids, preventing outages, and supporting decarbonization.
LGES is retooling its Tennessee plant (with GM's Ultium Cells) to make LFP cells as part of the deal, displaying a long-term commitment to the battery chemistry. Tesla's first overseas battery storage production plant in Shanghai began construction in December 2024, with a goal of delivering 10,000 Megapacks within a year when fully operational.
This partnership underscores a broader industry shift toward localized battery production in North America, driven by the push for clean energy, geopolitical trade considerations, and economic incentives to build resilient domestic supply chains. The deal includes a 7-year extension option, meaning Tesla and LGES may continue the partnership through 2037.
In summary, Tesla’s deal with LGES for LFP batteries strengthens Tesla’s supply chain resilience, supports its expanding energy storage business, and aligns with wider market and policy trends favoring U.S.-based clean energy manufacturing.
- The energy storage industry, with Tesla leading the charge, is witnessing growth faster than the vehicle business, fueled by the increasing demand for stationary energy storage systems.
- The partnership between Tesla and LG Energy Solution (LGES) marks a strategic move to bypass US tariffs on Chinese battery imports, lowering supply chain risks and costs while supporting local manufacturing.
- The use of lithium iron phosphate (LFP) batteries, which LGES will manufacture at its Michigan facility, is suitable for stationary energy storage due to its safety, longevity, and cost-effectiveness compared to other lithium-ion chemistries.
- This deal between Tesla and LGES is significant, not only for securing a large supply of LFP batteries but also for its potential to help Tesla meet the Inflation Reduction Act (IRA) domestic content requirements, thereby supporting the growth of renewable energy and clean energy solutions in the US.
