Tesla joins forces with LG in a fresh $4.3 billion project for manufacturing LFP batteries domestically in the United States.
In a significant move for the clean energy sector, Tesla has announced a new partnership with LG Energy Solution (LGES) worth $4.3 billion. This deal secures a large-scale, domestic supply of lithium iron phosphate (LFP) batteries, specifically for Tesla's energy storage systems[1][2][4].
Under the terms of the agreement, LGES will manufacture the LFP batteries in the United States, starting from August 2027 through July 2030. The deal includes a 7-year extension option, meaning Tesla and LGES may continue the partnership through 2037[1].
This partnership is expected to help boost US domestic supply chains and reduce Tesla's reliance on Chinese suppliers like Contemporary Amperex Technology (CATL). By sourcing U.S.-made LFP batteries, Tesla can circumvent U.S. tariffs on Chinese imports and comply with domestic content requirements under U.S. policies such as the Inflation Reduction Act[1][2][4].
The LFP batteries will be used in Tesla's Megapack systems, large-scale battery installations for grid and renewable energy storage and distribution. Each Megapack unit integrates battery modules, inverters, and thermal systems into a turnkey system that can be deployed rapidly[5].
The new deal comes at a time when Tesla's energy division is experiencing rapid growth. In the second quarter of 2025, the division hit record deployments[3]. Energy storage has become a crucial part of Tesla’s product mix, and LFP batteries’ safety, cost-effectiveness, and stability make them well-suited for stationary storage applications in residential, commercial, and utility-scale projects[2][4].
The locally produced LFP cells will enhance Tesla’s Megapack and other energy storage solutions, which are pivotal to storing renewable energy and managing grid demands sustainably[4]. By sourcing U.S.-made LFP batteries, Tesla aligns with broader industry and government movements to localize battery production, reduce geopolitical risks, and strengthen clean energy infrastructure in North America[1][4][5].
The deal is a major step in Tesla’s shift towards a diversified, resilient battery supply for its expanding energy business rather than its EV manufacturing[1][2][4]. With the ability to scale its energy generation and storage division without supply bottlenecks, Tesla is positioned to become even more dominant in the global grid battery market, competing with utilities and storage providers across the US and beyond.
A single Megapack unit weighs 38 tons and can store over 3.9 MWh of energy, sufficient to power approximately 3,600 households for one hour[5]. However, revenues were slightly down in the second quarter of 2025, likely due to lower-priced or lower-margin products, indicating a need to make energy storage more cost-efficient.
References:
- Bloomberg
- Electrek
- Teslarati
- Tesla Investor Day 2020 Presentation
- Tesla Megapack Datasheet
- The collaboration between Tesla and LG Energy Solution (LGES) promises a significant innovation in the renewable energy industry, as it includes manufacturing lithium iron phosphate (LFP) batteries in the United States, thereby reducing the industry's reliance on foreign suppliers and promoting domestic finance initiatives such as the Inflation Reduction Act.
- The usage of LGES-produced LFP batteries in Tesla's Megapack systems will enable the efficient storage, renewable energy management, and grid demand sustainability, making the energy division of Tesla a influential player in the global industry.
- The energy division of Tesla is experiencing a period of growth, with record deployments in Q2 2025. However, the need for cost-efficient energy storage solutions has become apparent, driving efforts to further optimize the financial viability of these technologies in the renewable energy sector.
