Tesla struck a massive $4.3 billion battery deal with LG Energy Solution that’ll help the electric car maker evade hefty tariffs on Chinese imports. The agreement runs from August 2027 through July 2030 and covers lithium iron phosphate batteries for Tesla’s energy storage products.
LG Energy Solution will supply these batteries from its U.S. factories in Michigan, Ohio, and Tennessee. The deal represents about 25% of LG’s 2024 sales and includes options to extend the contract up to seven years and increase supply volumes. The batteries won’t go into Tesla’s cars. Instead, they’re destined for energy storage systems like the Megapack and Powerwall.
LG Energy Solution’s US factories will supply batteries exclusively for Tesla’s Megapack and Powerwall energy storage systems.
The timing isn’t coincidental. Chinese battery imports face 25% tariffs that could climb even higher under Trump-era policies. By sourcing batteries from LG’s American factories, Tesla avoids these costs entirely. This matters because Tesla currently relies heavily on Chinese battery giant CATL for its energy storage products.
Tesla’s own battery production can’t keep up with demand. The company makes some LFP batteries in-house, but output stays below 10 gigawatt-hours per year. Meanwhile, Tesla’s energy storage production exceeds 40 gigawatt-hours annually. That gap explains why they need LG’s help.
The energy storage market’s booming thanks to AI data centers and renewable energy projects. These facilities need massive battery systems to operate efficiently. LFP batteries work perfectly for this because they’re cheaper and safer than other battery types, even if they don’t pack as much energy.
For LG Energy Solution, this deal helps offset slowing demand for electric vehicle batteries. The South Korean company’s betting big on energy storage as its next growth driver. Their U.S. production capacity gives them a huge advantage over Chinese competitors who can’t avoid the tariffs. LG also secured a 4 gigawatt-hours contract with Delta Electronics for residential ESS batteries earlier in March, demonstrating their growing focus on the energy storage market. The contract value equals 5.9 trillion won, marking one of LG Energy’s largest supply agreements to date.
This partnership shows how trade policies reshape supply chains. Tesla’s reducing its dependence on Chinese suppliers while guaranteeing it can meet growing energy storage demand. The deal also guarantees Tesla complies with “Buy American” requirements that favor domestic production.
Both companies benefit from a more stable, tariff-free supply arrangement that supports America’s expanding energy storage infrastructure.