Electric vehicle (EV) giant Tesla (TSLA) has signed a $4.3 billion deal with South Korea’s LG Energy Solution Ltd. to source lithium iron phosphate (LFP) batteries for its energy storage business. LFP batteries are generally cheaper than nickel and cobalt-based lithium-ion batteries. LG Energy is leveraging its strong position as one of the few LFP battery manufacturers in the U.S., competing primarily with Chinese rivals.
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Yesterday, LG Energy disclosed in a regulatory filing that it had secured a 5.94 trillion won ($4.3 billion) contract for supplying batteries to a major corporation, though it did not disclose the customer’s identity due to business confidentiality. However, Reuters later confirmed that the counterparty is Tesla, citing a person familiar with the matter.
Details of the Tesla-LG Energy Deal
According to the agreement, the LFP batteries will be manufactured and supplied from LG’s U.S. factory. These batteries are used in both EVs and energy storage systems. While LG’s filing did not specify the end use, Reuters confirmed that Tesla will use the batteries for its rapidly growing energy storage business.
The battery supply contract runs from August 2027 until July 2030, with an option to extend for another seven years pending further consultation with the customer. LG also noted in the filing that the contract allows for an increase in both supply volumes and contract value, depending on future negotiations. For LG, this contract marks a significant milestone, with its current value surpassing the company’s Q2 revenue of $4.05 billion.
LG Energy is aiming to strengthen its energy storage business in the U.S. and is in discussions to expand LFP battery manufacturing capacity at its joint venture plant with General Motors (GM) in Tennessee. As LG has only two major customers in the U.S., Tesla and GM, there was early speculation that GM could be the undisclosed customer, given LG’s existing joint venture with the automaker. LG is also constructing an LFP battery plant in Arizona, and its North American ESS battery manufacturing hub in Michigan is expected to begin production soon.
Earlier this week, Tesla signed a $16.5 billion deal with South Korea’s Samsung Electronics (SSNLF) for the production of Tesla’s next-generation AI6 chip at an upcoming plant in Taylor, Texas. The chipmaking contract with Samsung is set to run until the end of 2033.
Is TSLA Stock a Buy, Hold, or Sell?
On TipRanks, TSLA stock has a Hold consensus rating based on 14 Buys, 15 Holds, and eight Sell ratings. The average Tesla price target of $310.84 implies 3.2% downside potential from current levels. Year-to-date, TSLA stock has lost 20.5%.
