The US Department of the Interior confirmed on Monday that Tesla is the customer behind LG Energy Solution’s $4.3 billion battery supply contract, ending months of speculation over the identity of the buyer in one of the largest battery deals signed last year.
The department said both companies have agreed to build a lithium iron phosphate prismatic battery cell manufacturing facility in Lansing, Michigan, with production scheduled to begin in 2027.
The cells will power Tesla‘s Megapack 3 energy storage systems manufactured in Houston.
“American-made cells will power Tesla‘s Megapack 3 energy storage systems produced in Houston, creating a robust domestic battery supply chain,” the department said on its website.
Reuters first reported on the deal in late July.
The agreement is a three-year contract running from 2027 to 2030, with options to extend its duration and increase supply volumes.
The batteries will mainly be used in Tesla’s energy storage systems, helping the company reduce its reliance on Chinese suppliers.
LG Energy Solution is adding to its previous $4.3 billion investment from mid-last year to expand its plant in Holland, Michigan.
The factory, which previously made only EV batteries, will now produce lithium iron phosphate battery cells for grid-scale energy storage.
At full capacity, the new production lines will generate 16.5 gigawatt-hours of these cells per year.
Asian Suppliers
Currently, Tesla’s supply chain depends heavily on Asian manufacturers.
Its best-selling Model 3 and Model Y vehicles use batteries supplied by Panasonic, LG Energy Solution, and China’s largest battery manufacturer, CATL.
In July, Tesla also signed a $16.5 billion deal with Samsung Electronics to produce AI semiconductors. The agreement will run until 2033 and includes a new plant in Taylor, Texas.
“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip,” Chief Executive Officer Elon Musk wrote later that month on X.
According to Musk, “the strategic importance of this is hard to overstate.”
Musk explained that while “Samsung currently makes AI4,” TSMC (Taiwan Semiconductor Manufacturing Company) will produce AI5, initially in Taiwan and later in Arizona.
Amid strained capacity at TSMC, Samsung is looking to strengthen its relation with major US tech companies by expanding its manufacturing footprint in the country.
L&F Contract Cut
On the other hand, Tesla slashed its contract with South Korea-based battery material supplier L&F late last year due to a “change in supply quantity.”
According to L&F, the 3.93 trillion won ($2.7 billion) contract signed in February 2023 has been reduced to 9.73 million won ($11.4 million).
The company was set to supply Tesla with high-nickel cathode materials for battery production of the in-house developed 4680 cells, from January 2024 through December 2025.
CEO Elon Musk said in 2020 that mass-producing the 4680 cells would help the company produce cheaper vehicles.
“About three years from now, we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous,” the chief executive stated then.
With the new cells, Tesla aimed to cut down or eliminate the use of costly materials, such as cobalt, commonly used in lithium-ion batteries.
Despite its ambitions, the 4680 cells have only been used in the Cybertruck batteries up until now, a source familiar with the matter told Bloomberg late last year.
Tesla is expected to integrate the cells in the upcoming Cybercab model.
Ford’s BESS Business
Trade tensions between the United States and South Korea, along with clean energy policy changes under the Trump Administration, have put increasing pressure on the battery industry.
Late last year, South Korean battery maker SK On and Ford ended their joint venture, BlueOval SK, just four months after the Detroit automaker had announced plans to start producing electric vehicle batteries at its Louisville Assembly Plant.
The company announced it would halt production of LFP batteries for the auto industry and instead redirect investment toward battery energy storage solutions (BESS) — an area that Tesla leads.
Ford plans to hire 2,100 employees for the new production phase, with a spokesperson stating that all those who were laid off from the joint venture will have “the opportunity to apply” for these jobs.
The plant is not expected to begin operations until 2027, as removing the EV battery equipment and retooling the facility for battery storage will take approximately 16 months.
The company recently appointed Lisa Drake as the new President of Ford Energy, which will handle the battery storage business unit.
