Korean battery-maker gains edge as US tariffs squeeze China’s CATL
LG Energy Solution has secured a 5.9 trillion won ($4.3 billion) deal to supply lithium-iron phosphate battery cells, likely for Tesla’s energy storage systems, solidifying its position as the only producer of these cost-effective batteries in the US.
According to LG Energy Solution’s regulatory filing on Wednesday, it will supply LFP cells for a global client for three years from Aug. 1, 2027, to July 31, 2030, with the possibility of extending the contract to 2034. This agreement represents 23 percent of last year’s sales revenue of 25.6 trillion won, marking the company’s largest ESS contract.
Assuming a price range of $85 per cell, media reports project the total supply amounts to approximately 50 gigawatt-hours worth of cells.
LG Energy Solution declined to share details of the deal, citing confidentiality, but industry sources anticipate that the company will be supplying batteries for Tesla’s ESS products. LG Energy Solution is currently manufacturing LFP cells for ESS in its Michigan plant, targeting the US market. Meanwhile, its LFP battery products for electric vehicles, intended for Renault Group, are slated for production at its Wroclaw facility in Poland.
During Tesla’s conference call for the first quarter of this year, Travis Axelrod, head of investor relations at Tesla, said, “The impact of tariffs on the energy business will be outsized since we source LFP battery cells from China. We are in the process of commissioning equipment for the local manufacturing of LFP battery cells in the US, however, the equipment that we have can only service a fraction of our total installed capacity.”
“We’ve also been working on securing additional supply chains from non-China-based suppliers, but it will take time.”
In response to industry headwinds from US tariffs that restrict the use of batteries and battery components sourced from China, Tesla has accelerated construction of its LFP cell manufacturing plant for ESS in Nevada, with recent reports indicating the site is nearing completion.
Given Tesla’s strong business relationship with China’s CATL for its ESS business, a key strategy has been to incorporate equipment and battery designs from the Chinese battery behemoth at its Nevada facility.
However, Tesla has recognized the limitations in expanding its battery cell capacity to meet the rapidly growing ESS market in the US, fueled by artificial intelligence data centers and the demand for reliable electricity supply solutions.
Lee Ho-geun, a car engineering professor at Daeduk University, noted, “There may be a delay before Tesla ramps up its production capacity (at its Nevada plant). This potential production gap likely prompted Tesla to turn to LG Energy Solution, which seems to have offered competitive pricing compared to tariff-impacted Chinese companies, including CATL.”
Chinese-made ESS batteries imported into the US are reported to face a 40.9 percent tariff, which is anticipated to rise to 58.4 percent next year. Korean battery-makers have been pushing for local production of ESS cells in the US to brush off the current 10 percent tariff impact, which is set to increase to 25 percent starting Friday.
Industry insiders project that the price of a Chinese LFP battery cell targeting the US market will increase from $73 last year to $87 by 2026.
As of June, LG Energy Solution has secured multiple contracts exceeding 50 GWh capacity, with key US clients including Delta Electronics, Excelsior Energy Capital, Terra-Gen and Hanwha Qcells.
According to market tracker Global Market Insights, the US ESS market is expected to grow at an average annual rate of 13.4 percent, reaching $305.5 billion by 2034 from $78.9 billion last year.
hyejin2@heraldcorp.com
