Tesla enters into a $4.3 billion battery contract with LGES, targeting diminished dependency on China operations.
Tesla, the leading electric vehicle (EV) manufacturer, is making strides to reduce its reliance on Chinese battery suppliers by signing a significant contract with LG Energy Solution (LGES). The South Korean company will supply lithium iron phosphate (LFP) batteries, manufactured in the United States, worth $4.3 billion over three years, starting from August 2027 and extending until July 2030, with an option for a seven-year extension [1][2][3][4][5].
The LFP batteries will be produced at LGES’s Michigan factory, primarily intended for Tesla’s stationary energy storage systems, such as the Megapack products [1][3]. This move is a strategic effort by Tesla to mitigate the impact of rising U.S. tariffs on Chinese imports and secure a more localized and tariff-compliant battery supply chain, particularly for its growing energy storage division. This division accounted for over 10% of Tesla’s sales and is seen as a key growth area amid slowing electric vehicle demand [1][3].
LGES is one of the few manufacturers producing LFP cells domestically in the U.S., positioning them as a key new supplier to Tesla [2][3]. The company is expanding LFP production in the U.S. and converting existing lines from high-nickel to LFP at its Tennessee plant in partnership with General Motors through Ultium Cells.
Tesla's Chief Financial Officer, Vaibhav Taneja, stated in April 2025 that Tesla was looking to secure non-Chinese battery suppliers for its energy storage business due to tariffs, but it would take time [6]. This contract with LGES is a significant step towards that goal.
In summary, Tesla has signed a multi-billion-dollar 3-year contract (with a possible 7-year extension) with LG Energy Solution for U.S.-made LFP batteries starting in 2027 to reduce dependency on China. LGES’s Michigan and Tennessee factories (the latter via joint ventures) are the new potential suppliers producing LFP batteries domestically. The purpose of this agreement is to supply stationary energy storage systems and support Tesla’s energy storage business growth while minimizing tariff impacts and supply chain risks from China.
This shift highlights Tesla’s broader strategy to localize and diversify its battery supply chain in response to geopolitical and economic pressures. The company is aiming to reduce its imports from China due to ongoing tariff wars and policy headwinds.
[1] Tesla signs $4.3 billion LFP battery deal with LGES
[2] LGES to expand LFP production in the U.S.
[3] LGES to convert existing lines to LFP production in Tennessee
[4] LGES's major customers include Tesla and General Motors
[5] Tesla's energy storage division
[6] Tesla's CFO discusses non-Chinese battery suppliers
Read also:
- Comcast Introduces Sports-Oriented Video Bundle in Preparation for the World Cup Tournament
- Is Maruti's reign over the SUV market being challenged by Mahindra's aggressive move to snatch the top spot?
- Social Security Administration Abandons Plan for Electronic Payments: Important Information for Recipients of Benefits
- Increased energy demand counters Trump's pro-fossil fuel strategies, according to APG's infrastructure team.
