Tesla Signs USD 4.3 Billion Deal With LGES For Battery Production

August 4, 2025

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Tesla Signs USD 4.3 Billion Deal With LGES, Will Use These Batteries In Its Energy Storage Systems

Tesla has signed a USD 4.3 billion deal with LG Energy Solution (LGES) to supply LFP batteries. Interestingly, the brand will use these batteries in its energy storage systems, not its electric vehicles. The batteries will be manufactured at LGES’s Michigan plant in the United States.

Reducing Reliance On China

This move helps Tesla reduce its reliance on Chinese battery imports, which U.S. tariffs affect. Tesla’s CFO said Chinese battery tariffs heavily impacted their energy business performance. He confirmed that Tesla seeks non-China-based suppliers to stabilise its energy division.

Contract Details

LGES began LFP battery production at its Michigan plant in May, strengthening its US market presence. The contract will run from August 2027 to July 2030. The contract includes options to extend the deal by seven years and increase supply volumes as needed.

LGES has not confirmed Tesla as the client, citing confidentiality agreements. However, the timing and scale strongly suggest Tesla’s involvement. LGES remains one of the only large-scale U.S. LFP battery producers.

With electric vehicle demand slowing, LGES is shifting focus toward energy storage systems. AI-powered data centres drive high demand for these. The company may convert EV battery lines to produce energy storage in response to market changes.

Tesla’s energy business makes up just over 10% of its total revenue. However, Tesla’s energy business represents a growth area amid slowing EV sales. The US government’s support for EVs is also expected to decline soon.

Business Strategy

Tesla recently signed a USD 16.5 billion chip deal with Samsung Electronics to expand US operations. South Korean suppliers are increasing investment to meet American demand. Tesla’s partnerships demonstrate a strategic shift toward US-based supply chains.