Tesla has signed a $4.3 billion deal with LG Energy Solution for lithium iron phosphate (LFP) batteries. These batteries will be used in Tesla’s energy storage systems in the U.S., but not in vehicles. Production will begin in August 2027 at LG’s U.S. facilities. This is the second major partnership Tesla has formed with a South Korean company this month. Earlier, Tesla made a $16.5 billion semiconductor deal with Samsung Electronics. While LG didn’t mention Tesla by name, the company announced a 5.9 trillion won overseas contract for LFP batteries. This contract can be extended for up to seven years and could increase supply. The agreement will help LG Energy grow its presence in the U.S. energy storage market, especially as competition with Chinese battery makers intensifies. LG has also started producing LFP batteries at its plant in Michigan and plans to expand through a joint venture with General Motors in Tennessee. This news is important for Tesla’s energy division, as it secures a key part of its supply chain. However, since production won’t start until 2027, the immediate financial impact is far off. Tesla’s energy storage reached a record 5.4 GWh in the second quarter of 2025, so securing this future supply is a major risk-reduction move. Traders might see any initial rise in Tesla’s stock as a chance to sell short-dated call options, as implied volatility could drop once the long-term nature of the deal becomes clear. For LG Energy Solution, this agreement supports its plan to expand in the U.S. and compete with Chinese rivals. The deal enables LG to challenge CATL, which had over 35% of the global EV and energy storage battery market at the end of 2024. Since the deal benefits from tax credits in the Inflation Reduction Act, investors might consider bullish options for LG, expecting strong confidence in its North American growth. This partnership, along with the recent Samsung semiconductor deal, highlights a trend of securing supply chains with U.S. allies. We see this as a long-term shift, especially considering the price volatility in lithium in 2023 and 2024 that showed supply chain weaknesses. A potential strategy could be to invest in U.S. and South Korean suppliers benefitting from these partnerships while taking short positions on competitors missing out on these crucial deals.

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