Tesla and South Korea-based LG Energy Solution (LGES) have signed a lithium iron phosphate (LFP) battery supply agreement worth $4.3 billion. A source familiar with the process told Reuters that the agreement was made directly with Tesla. LGES, however, did not disclose the customer’s name in its official statement but stated that the agreement stipulates that the customer’s identity be kept confidential.

Tesla and LG Sign Battery Agreement

According to the agreement, LFP batteries will be produced at LGES’s factory in Michigan, USA. The company did not specify the exact products in which the batteries will be used. Vehicles or energy storage systems appear to be possible options at this point.

LGES stands out for having major customers such as both Tesla and General Motors. While no official statement has been released regarding the batteries’ intended use, recent developments are strengthening the possibility of energy storage.

Tesla currently imports LFP batteries from China. However, high tariffs imposed by the US on China are making this supply model increasingly costly. Tesla Chief Financial Officer Vaibhav Taneja stated in April that they aimed to turn to suppliers outside of China for energy storage systems. The LGES agreement, which followed this announcement, is considered one of the first steps in this strategic shift.

LGES is one of a limited number of companies producing in the US in the LFP battery market, which is dominated by Chinese manufacturers. The company began production at its Michigan facility in May. However, due to the slowdown in demand for electric vehicles in the US, LGES is keeping the option of shifting some of its production lines to energy storage systems on the table.

The agreement covers a supply period between August 2027 and July 2030. The agreement between the parties also includes options to extend the agreement for up to seven years and increase supply volume.