Tesla has inked a landmark $4.3 billion battery supply agreement with South Korea’s LG Energy Solution (LGES), as the EV giant steps up efforts to curb its reliance on Chinese imports in response to tightening U.S. tariffs.
Sources familiar with the deal say LGES will supply lithium iron phosphate (LFP) batteries from its plant in Michigan, one of the few U.S.-based facilities producing such batteries, as the LFP market is historically dominated by Chinese manufacturers.
The multi-year contract will provide Tesla with energy storage system batteries over a three-year period, with an option to extend.
LGES officially disclosed the contract on Wednesday, describing it only as a global LFP battery supply agreement worth $4.3 billion, but refrained from identifying Tesla due to confidentiality clauses. The company said the deal runs from August 2027 through July 2030, with potential for a seven-year extension and a scale-up in supply, depending on client needs.
As electric vehicle sales growth cools, LGES is accelerating efforts to pivot into the fast-expanding energy storage sector, driven by global power demand from data centers and artificial intelligence, according to LGES last week.
Cho Hyun-ryul, a senior analyst at Samsung Securities, said that LGES’ South Korean rivals such as Samsung SDI and SK On have yet to enter the American LFP battery market, giving the company a temporary first-mover advantage.
The partnership comes as Tesla is actively diversifying its supply chain away from China. CFO Vaibhav Taneja highlighted that U.S. import tariffs were having an “outsized” effect on Tesla’s energy unit, due to heavy reliance on Chinese LFP battery imports.
Tesla is working to secure more supply from non-China-based providers, but this transition will take time, Taneja noted. Tesla’s energy storage and generation division now accounts for roughly 10% of the company’s overall revenue.
Tesla also announced a $16.5 billion semiconductor procurement arrangement with Samsung Electronics’ Texas plant this week, another signal of growing collaboration between U.S. firms and South Korean suppliers as Seoul pushes to shield its industries from looming tariff hikes.
High-level talks are underway in Washington to hammer out a trade deal before a 25% tariff penalty on U.S. imports from South Korea takes effect in August.
LGES began producing LFP batteries at its Michigan plant in May, and is considering converting some U.S. EV battery lines for energy storage in response to market dynamics.
While Tesla has plans to begin manufacturing its own LFP cells in Nevada by the end of the year, initial output is expected to cover only a fraction of its voracious battery needs.
CEO Elon Musk underlined the soaring demand for stationary batteries in the global energy transition, despite risk from the upcoming tariffs and other supply chain challenges.
