Tesla named as buyer in LG Energy Solution’s $4.3bn deal

The US Department of the Interior has confirmed Tesla as the customer behind a US$4.3bn battery supply agreement that LG Energy Solution disclosed in July without naming its counterpart. The two companies are planning to build an lithium-iron-phosphate (LFP) prismatic battery cell facility in Lansing, Michigan, with production beginning in 2027 and cells destined not for electric vehicles, but Tesla’s Megapack 3 energy storage systems (ESS) manufactured in Houston.

The supply agreement runs three years effective from August 2027, with options to extend the deal by up to seven years. LG Energy Solution fully owns the Lansing site after buying out General Motors’ stake in the former Ultium Cells joint venture in May 2025, freeing up the site’s full 50 GWh annual production capacity to repurpose for the ESS contract.

The deal clearly aims to address a fragile trade arrangement. Thus far Tesla has relied heavily on CATL’s prismatic LFP cells for the Megapack systems, but US tariffs on Chinese imports have made that supply chain disproportionately costly and exposed to abrupt trade pronouncements from the Trump administration. politically exposed. 

LG Energy Solution is one of a small handful of producers scaling LFP production outside China; most European and US battery production has instead focused on nickel-manganese-cobalt (NMC). Notably, domestic production also allows Tesla’s energy storage customers to claim federal tax credits tied to US-manufactured content.

LFP suits stationary storage well: it boasts a strong cycle life and charge patterns arguably better matched to grid applications than high-energy-density EV cells. It also lacks exposure to volatile cobalt or nickel supply chains. For Tesla’s fast-growing energy division, the Lansing plant addresses concerns around both the chemistry and the supply chain in a single agreement.

However, the wider relationship between the two companies is not without friction. And again it concerns chemistry: LG Energy Solution is, according to Business Korea reporting, planning to drop LG Chem as its cathode supplier for Tesla vehicle batteries. The outlet indicated that the sister company failed to meet Tesla’s requirements for NMC cells with 95% nickel content—a threshold that enables around 20% higher energy density than the 90% products LG Chem currently produces at scale.