Tesla has reportedly signed a massive $4.3 billion deal with South Korea’s LG Energy Solution (LGES) to source lithium iron phosphate (LFP) batteries for its energy storage products, according to a person familiar with the matter who spoke with Reuters. The agreement marks a major shift in Tesla’s efforts to reduce its reliance on Chinese imports amid growing tariff pressures in the U.S.
The deal, which spans from August 2027 through July 2030, will see LFP batteries supplied from LGES’s factory in Michigan. While LGES officially announced the multibillion-dollar agreement on Wednesday, it did not name Tesla as the buyer or confirm if the batteries would be used for vehicles or energy storage systems. However, sources indicate the batteries are intended for the latter.
Tesla’s Powerwall and Megapack product lines continue to feed demand for high-capacity batteries. The company’s utility-grade Megapack systems have become a cornerstone in battery energy storage system (BESS) projects across the globe — from Nevada and Hawaii to Japan, Australia, China, Europe, and more. Just this week, Tesla celebrated the production of the 1,000th Megapack at its Shanghai Megafactory, following last year’s milestone of 10,000 units produced at its California plant in Lathrop.
LGES began producing LFP cells in Michigan in May, giving it a significant first-mover advantage in a U.S. market otherwise dominated by Chinese exporters. “Other players… have yet to enter the U.S. LFP market, allowing LGES to enjoy a first-mover advantage,” said Samsung Securities analyst Cho Hyun-ryul.
Tesla CFO Vaibhav Taneja recently highlighted how tariffs have had an “outsized” impact on the company’s energy division. CEO Elon Musk echoed that sentiment during Tesla’s Q2 earnings call last week, saying, “Energy is growing really well despite headwinds from tariffs and various supply chain challenges.” He added that most people don’t “appreciate just how gigantic the scale of battery demand is.”
While Tesla is working on its own LFP cell manufacturing line in Nevada, its in-house output will only cover a fraction of the growing demand — making partnerships like this one with LGES all the more critical.
