The U.S. government has officially confirmed that electric vehicle maker Tesla Inc. and South Korean battery giant LG Energy Solution (LGES) have finalized a landmark $4.3 billion supply agreement. The partnership involves establishing a lithium-iron-phosphate (LFP) battery manufacturing facility in Lansing, Michigan, aimed at fortifying the domestic battery supply chain amid surging power demand from the AI era.
The confirmation was detailed in a report by the U.S. Department of the Interior (DOI) released during the recent Indo-Pacific Energy Security Summit in Tokyo. This announcement puts an end to months of speculation following LGES's disclosure of a massive supply deal last July, finally identifying Tesla as the mystery buyer behind the long-term contract.
Under the agreement, LGES will retool its facility in Lansing, Michigan, to produce prismatic LFP battery cells. The plant is scheduled to begin production in 2027. The American-made cells will be exclusively integrated into Tesla's Megapack 3 energy storage systems, which are assembled at its gigafactory in Houston, Texas.
"American-made cells will power Tesla's Megapack 3 energy storage systems produced in Houston, creating a robust domestic battery supply chain," the DOI stated. The supply contract is set to run from August 2027 to July 2030, with options for a potential extension of up to seven years.
The collaboration holds significant strategic weight for both companies.
For Tesla, this move is a critical step in onshoring its supply chain. The company has long relied on LFP batteries imported from China for its energy storage business. Amidst evolving U.S. tariff policies and the domestic content requirements of the Inflation Reduction Act (IRA), this dependence created financial risks and threatened subsidy eligibility. Tesla previously disclosed that tariffs impacted its energy storage business by roughly $200 million in the third quarter of 2025 alone. By partnering with LGES, which has an established U.S. production footprint, Tesla can lower costs and ensure its Megapack products remain compliant and competitive in the domestic market.
For LG Energy Solution, this deal is a major strategic win in its pivot toward the fast-growing Energy Storage System (ESS) market, especially as the electric vehicle transition shows signs of slowing. The proliferation of AI data centers across North America has drastically increased the need for grid stability, fueling an ESS boom. This contract marks LGES's first large-scale agreement for prismatic LFP batteries and positions it as the first global manufacturer capable of producing all three major form factors (pouch, cylindrical, and prismatic) on U.S. soil.
Industry analysts suggest that this transaction will reshape the North American energy storage supply chain. It signifies an expansion of the Tesla-LG partnership from traditional EV batteries into the high-potential ESS sector. Furthermore, it intensifies competition for Chinese manufacturers, who have long dominated the LFP market but have limited production presence in the U.S., potentially accelerating a realignment of the global battery industry.
Following the announcement, LGES's shares rose in Seoul trading, reflecting strong market confidence in the partnership.