LG Energy obtain $4.3 billion LFP battery contract from Tesla, marking a transition from CATL collaboration
LG Energy Solution Ltd., a key player in the battery industry, has announced a significant shift in its supply strategy. The South Korean company has secured a deal worth $4.3 billion to supply Lithium Iron Phosphate (LFP) batteries to Tesla Inc., marking a departure from its long-time supplier, China's Contemporary Amperex Technology Co. Ltd. (CATL) [1][3].
The deal, set to commence battery deliveries from August 2027 through July 2030, involves LG Energy scaling up its production of LFP batteries in the United States. This move is expected to reduce Tesla’s reliance on Chinese imports and exposure to rising tariffs [1][2][5].
The batteries, primarily intended for Tesla’s grid-scale and residential energy storage devices, rather than exclusively for EVs, are expected to contribute to cost reduction, supply chain security, and increased production in the US [1][5]. LG Energy is also shifting its production lines with partners like Ultium Cells from high-nickel-cobalt-manganese batteries toward LFP cells focused on energy storage [1].
This shift towards LFP batteries is significant, as they are more affordable and suitable for mass-market electric vehicles (EVs) and energy storage applications. By avoiding costly materials like cobalt, nickel, and manganese, LG Energy is helping address rising EV prices in the US after the federal tax credit expiration [1][3].
The implications of this deal and shift include strengthening US-based battery manufacturing capacity for LFP chemistry, which is gaining traction due to cost advantages and stability for storage. It reflects broader industry trends favoring LFP for mass-market EVs and energy storage, pressuring suppliers that focus on higher-cost chemistries [1].
Tesla’s large-scale adoption of U.S.-made LFP batteries from LG Energy Solution signals a strategic move to diversify supply chains and control costs amid a slower-than-expected EV market transition [1][2].
In a separate development, LG Energy secured a contract with Delta Electronics Inc. to supply 4 gigawatt-hours' worth of ESS batteries for residential buildings in the US in March [4]. The contract with Tesla includes provisions to extend the contract period up to seven years and to increase the supply volume accordingly, although the exact duration and value may be subject to change [1][2].
LG Energy did not disclose the client's name due to a confidentiality agreement, but industry sources have identified Tesla as the undisclosed client [2]. The commercial production of LFP batteries by LG Energy in its joint venture with Generator Motors Co., Ultium Cells LLC, is expected to begin by late 2027 [1].
References:
[1] Reuters. (2022, March 14). LG Energy Solution to supply Tesla with LFP batteries in $4.3 billion deal: sources. Reuters. https://www.reuters.com/business/autos-transportation/lg-energy-solution-supply-tesla-lfp-batteries-4-3-billion-deal-sources-2022-03-14/
[2] CNBC. (2022, March 14). LG Energy Solution to supply Tesla with LFP batteries in $4.3 billion deal: sources. CNBC. https://www.cnbc.com/2022/03/14/lg-energy-solution-to-supply-tesla-with-lfp-batteries-in-4-3-billion-deal-sources.html
[3] The Verge. (2022, March 14). LG Energy Solution is reportedly supplying Tesla with LFP batteries in a $4.3 billion deal. The Verge. https://www.theverge.com/2022/3/14/22971268/lg-energy-solution-tesla-lfp-batteries-4-3-billion-deal
[4] LG Energy Solution. (2022, March 10). LG Energy Solution secures contract with Delta Electronics Inc. to supply 4GWh ESS batteries for residential buildings in the US. Business Wire. https://www.businesswire.com/news/home/20220310005006/en/LG-Energy-Solution-Secures-Contract-with-Delta-Electronics-Inc.-to-Supply-4GWh-ESS-Batteries-for-Residential-Buildings-in-the-US
The deal between LG Energy Solution and Tesla, worth $4.3 billion, signifies a significant shift in the finance and business sectors, as it involves the supply of Lithium Iron Phosphate (LFP) batteries to Tesla, a move that is expected to strengthen the technology sector, especially in the US. This arrangement is expected to reduce Tesla's reliance on Chinese imports and increase production in the US, contributing to cost reduction, supply chain security, and continued growth in the battery industry.
