Tesla has secured a significant $4.3 billion contract with South Korean battery manufacturer LG Energy Solution to supply lithium iron phosphate batteries for energy storage systems, marking a strategic move to reduce dependence on Chinese suppliers whilst expanding its energy storage capacity.
South Korean battery maker LG Energy Solution (LGES) has signed a $4.3 billion contract to supply Tesla with lithium iron phosphate (LFP) batteries for energy storage systems, according to sources familiar with the matter. The deal represents one of the largest battery supply agreements in the industry and signals Tesla’s commitment to diversifying its supply chain.
Contract duration and flexibility LGES said the contract would last from August 2027 to July 2030 and included an option to extend the deal period by up to seven years and to increase supply volumes depending on discussions with its customer. This flexible structure allows both companies to adapt to market conditions and Tesla’s evolving energy storage requirements over the coming decade.
The batteries will be supplied from LG’s U.S. factory, ensuring compliance with American manufacturing requirements and potentially making Tesla eligible for additional government incentives under the Inflation Reduction Act. This domestic production capability aligns with Tesla’s strategy to strengthen its North American supply chain.
Strategic implications for supply chain The agreement comes as Tesla seeks to reduce its reliance on Chinese battery suppliers amid ongoing geopolitical tensions and supply chain vulnerabilities. For LGES, the $4.3 billion contract represents a strategic inflection point: a chance to redefine its role in the EV transition while capitalising on the IRA’s incentives.
The deal focuses specifically on lithium iron phosphate batteries, which are increasingly popular for energy storage applications due to their lower cost, enhanced safety characteristics, and longer lifespan compared to traditional lithium-ion batteries. This technology is particularly well-suited for Tesla’s Megapack and Powerwall products.
Market context and timing The agreement comes despite LGES warning this month of a further slowdown in EV battery demand, suggesting that energy storage systems represent a growing market opportunity separate from the automotive sector. Tesla’s energy storage business has been expanding rapidly as utilities and commercial customers seek grid-scale battery solutions.
LGES is expanding its European footprint, with plans to produce mid- to low-end batteries at its Poland facility by late 2025, demonstrating the company’s global expansion strategy alongside its strengthened partnership with Tesla.
REFH – Newshub, 30 July 2025
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