Key Takeaways
1. Tesla switched to lithium iron phosphate (LFP) batteries for its Megapack energy storage system, which are safer, cheaper, and longer-lasting.
2. Tesla has two Megafactories in California and Shanghai that currently rely on Chinese LFP cells, making them vulnerable to federal tariffs.
3. To reduce import dependency, Tesla is establishing a new LFP battery facility in Nevada and has signed a contract with LG Energy to produce LFP batteries in the US.
4. LG Energy’s Lansing, MI facility will produce prismatic LFP batteries with an annual capacity of 50 GWh, supporting Tesla’s Megapack production.
5. The contract with LG is valued at over $4 billion and will last until the end of the decade, providing LFP batteries for both Megapacks and Tesla’s electric vehicles.
About five years ago, Tesla made a major change to its Megapack energy storage system (ESS) by switching to lithium iron phosphate (LFP) batteries, which are safer, cheaper, and last longer. These LFP batteries are currently the most favored choice for energy storage, both for grid applications and portable power solutions like the Anker Solix C2000, which is now available at a 48% discount on Amazon.
Tesla’s Manufacturing Facilities
Tesla has set up two Megafactories for producing Megapacks, located in Lathrop, California, and Shanghai. However, both factories rely on Chinese LFP cells to assemble the Megapack ESS. The company has been comparing the two largest battery manufacturers, CATL and BYD, to secure the lowest price available.
The Lathrop Megafactory can produce 10,000 Megapacks each year, using CATL batteries, which makes them susceptible to potential federal tariffs and restrictions on imports from China. To mitigate this issue, Tesla is working on increasing imports through a new LFP battery facility in Nevada, but it still depends on CATL’s equipment, and the output is insufficient to fully replace CATL as a supplier.
New Partnerships for Growth
This is why Tesla has allegedly signed a contract with LG Energy, a key supplier of 2170 cells for its electric cars, to also produce LFP batteries for its Megapack ESS division. This segment has shown some sales growth according to Tesla’s 2025 financial report, marking it as one of the few positive areas.
A significant advantage for Tesla is that these LFP cells will be manufactured in the US by a company not subject to import restrictions, meaning the Megapacks can qualify for any and all local or federal subsidies for American-made energy products.
Production Capacity and Future Plans
LG will produce the batteries at its Lansing, MI facility, which it fully owns after acquiring GM’s stake as the automaker shifted away from its EV production plans. LG will provide prismatic LFP batteries, similar to the current CATL cells used by Tesla, which are the most common form factor for energy storage systems.
The Lansing factory has an impressive annual capacity of 50 GWh, exceeding that of Tesla’s Shanghai facility. This will allow it to support the existing Megapack production in Lathrop independently once the LFP production lines are operational next year. The contract with LG is reportedly valued over $4 billion and will last until the end of the decade. In addition to LFP batteries for Megapack energy storage and 2170 EV cells, LG is expected to enhance the supply of 4680 batteries, which Tesla uses in the Cybertruck and certain Model Y versions as well.
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