Tesla has signed a $4.3 billion agreement with LG Energy Solution (LGES) to source lithium iron phosphate (LFP) batteries for its energy storage systems, a person familiar with the deal told Reuters. The batteries will be supplied from LGES’s Michigan facility, allowing Tesla to shift part of its supply chain away from China amid rising U.S. tariffs. The deal is scheduled to begin in August 2027 and may be extended through 2037.
Here’s why it matters:
This deal positions Tesla to secure long-term, tariff-compliant battery supplies for its growing energy storage division, which has emerged as a key growth area amid softening EV demand. The move underscores Tesla’s evolving product mix and long-term commitment to domestic supply chains. It also highlights a broader shift in the battery industry as U.S. and South Korean manufacturers ramp up local production to meet clean energy demands and navigate geopolitical trade pressures.
For energy storage integrators, commercial fleets, and dealers exploring battery-powered infrastructure offerings, this deal signals growing investment in reliable U.S.-based LFP production that could influence availability and pricing in the years ahead.
Key Takeaways
- Tesla secures U.S.-made battery supply
The EV maker signed a $4.3 billion deal with LG Energy Solution for lithium iron phosphate (LFP) batteries manufactured at LGES’s Michigan facility, according to Reuters. - Deal supports energy storage systems, not EVs
The batteries will be used in Tesla’s energy storage division, helping it grow despite tariff-related headwinds and reduced EV subsidies. - U.S. tariff pressure drives localization
Tesla CFO Vaibhav Taneja confirmed in April that U.S. tariffs had an “outsized” impact on its energy division due to Chinese battery sourcing. - Contract starts in 2027 with expansion potential
The agreement runs from August 2027 to July 2030 and includes options to extend the contract up to seven more years and increase volume. - LGES gains U.S. market edge in LFP segment
LGES, now producing LFP batteries in Michigan, becomes the only major supplier currently scaling U.S. production, outpacing rivals like Samsung SDI and SK On.
