Tesla Ends China Reliance with $4.3B LG Energy Deal for U.S. LFP Batteries

The U.S. government has confirmed that Tesla TSLA +1.11% ▲ signed a $4.3 billion supply deal with South Korea’s LG Energy Solution (LGES) for a lithium iron phosphate (LFP) prismatic battery cell manufacturing facility in Lansing, Michigan. Reuters reported the deal last year citing sources, but it remained unconfirmed until the White House’s recent statement. LGES will supply LFP batteries to Tesla for three years, from August 1, 2027, to July 31, 2030.

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These batteries will power Tesla’s Megapack 3 energy storage systems, built in Houston, helping the company bypass rising tariffs on Chinese imports. The move bolsters the battery supply chain and forms part of a massive $56 billion deal inked at the Indo-Pacific Energy Security Summit under the Trump administration.

Tesla Cuts Reliance on China

Tesla is cutting its dependence on Chinese components, as China dominates production of critical EV battery metals like lithium and phosphate. In July 2025, LGES announced a $4.3 billion deal to supply LFP batteries globally over three years, without naming the customer or specifying use in vehicles or energy storage.

LGES is among the few U.S. producers of LFP batteries, a chemistry long dominated by Chinese rivals with minimal American footprint. This positions LGES as a key player amid rising demand for domestic supply chains. In the U.S., LGES runs three battery cell plants in Ohio, Tennessee, and Michigan, with the latter currently producing LFP batteries for energy storage systems (ESS).

The deal’s timing is strategic. Tesla’s EV sales are slowing, but energy storage is booming, up 49% in 2025. By sourcing domestically, Tesla dodges tariffs (up to 100% on Chinese LFP), strengthens its supply chain, and gains cost visibility for scaling Megapack production, turning a vulnerability into a competitive edge.

Is Tesla a Buy, Hold, or Sell?

Analysts remain cautious about Tesla’s long-term outlook due to dwindling EV sales. On TipRanks, Tesla has a Hold consensus rating based on 13 Buys, 11 Holds, and seven Sell ratings. The average Tesla price target of $399.25 implies that shares are almost fully valued at current levels. Year-to-date, TSLA shares have fallen 12%.

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