Tesla’s $4.3 Billion Not-so-Secret Is Officially Out 

Last July, South Korea’s LG Energy Solution said it inked a $4.3 billion contract to supply batteries to … someone.

The secret was as poorly kept as a college frat house, with reports immediately pointing to Tesla as the not-so-mysterious counterparty. Nearly eight months later, LG confirmed its deepened partnership with the Elon Musk-led automaker on Tuesday, after the Department of the Interior included the arrangement in a roundup of energy pacts between US companies and partners across the Pacific. 

Electric Excess

The battery cells Tesla is buying will be produced at a plant in Lansing, Michigan, previously run by LG as a joint electric vehicle (EV) battery venture with General Motors. The end of Biden-era incentives hammered EV sales, however, leading GM and other US automakers to massively scale back their go-electric ambitions. US EV registrations fell 41% year over year in January, while GM disclosed $7.6 billion in EV-related write-downs.

LG bought out GM’s stake in the facility last spring and is converting it into a production hub for lithium iron phosphate (LFP) batteries. The EV market may be waning, but LFP batteries are hot commodities in the growing energy storage market. BloombergNEF forecast in December that US data center power demand could reach 106 gigawatts by 2035, up 36% from a previous estimate. Tesla is poised to capitalize:

• It’s buying the batteries for its fast-growing energy division, which sells utility-scale power storage systems called Megapack and Megablock. Though most of the company’s revenue still comes from EVs, the energy business grew sales 27% last year to $12.8 billion.
• The biggest threat to margins at Tesla’s growing energy division is US tariffs on imported Chinese LFP batteries. The LG deal creates a domestic supply chain for the company.

Investors’ initial reaction to the deal was positive on both counts. LG’s Seoul-listed shares rose 2.7% Tuesday. Tesla rose 0.9% in New York, besting the S&P 500’s 0.2% gain.

Make It a Trend: LG and General Motors are still partners in a Tennessee EV battery plant, but not for long. On Tuesday, they announced plans to recall 700 laid-off workers and turn the facility into an LFP plant.