July 30, 2025 — Detroit — Tesla has entered into a $4.3 billion agreement with South Korea’s LG Energy Solution to secure lithium iron phosphate (LFP) batteries for its energy storage systems. Under the contract, which runs from August 2027 through July 2030, LGES will supply the batteries from its Michigan-based factory, marking a strategic pivot toward reducing Tesla’s dependence on Chinese battery imports amid escalating tariff pressures.
The deal, disclosed by LGES in a regulatory filing, did not publicly name Tesla due to confidentiality clauses. However, sources familiar with the matter confirmed Tesla as the intended buyer. The agreement includes options to extend the contract for up to seven additional years and adjust supply volumes based on demand.
Tesla CEO Elon Musk has emphasized the company’s commitment to diversifying its supply chain and strengthening domestic sourcing. CFO Vaibhav Taneja previously cited tariffs on Chinese-made LFP cells as having an “outsized” impact on Tesla’s energy business—prompting the search for local alternative suppliers.
The deal comes as LGES continues expanding U.S. production capacities, filling a gap in the domestic LFP market that has been largely dominated by Chinese manufacturers. Tesla is also developing its own LFP cell production facility in Nevada, scheduled to be operational by the end of 2025, although executives acknowledge it will only cover a portion of future demand.
Tesla’s growing energy generation and storage segment—comprising more than 10% of company revenue—has become a major focus amid softening EV sales and diminishing government subsidies for electric vehicle purchases.
Strategic Significance
Enhances Tesla’s tariff resilience and reduces exposure to China‑based supply risks. Supports U.S. industrial policy goals and aligns with federal incentives under the Inflation Reduction Act. Strengthens Tesla’s energy storage infrastructure, positioning it for growth in data center backup power and grid-scale applications.
Tesla shares dipped slightly following the news, though analysts remain cautiously optimistic about the company’s ability to reshape its supply chain and capitalize on emerging energy storage markets.
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