Tesla and LG could fix $4.3 billion battery material deal

Electric vehicle (EV) company Tesla and South Korea’s LG Energy Solutions are discussing a potential deal worth 6 trillion won ($4.3 billion) to purchase battery material for millions of vehicles.

A report published by Korean media shows information about this deal and says that the Tesla team has recently ordered electrodes worth 6 trillion won from LG. Both firms are negotiating terms and a contract could be signed in the second half of this year.

This agreement between the companies could range up to 7 years to cover a major release roadmap. However, no new car models are announced at the moment.

Battery manufacturers process anode and cathode materials with conductive materials and binders to create electrodes. Then it is assembled into battery cells and supplied to car manufacturers. In Tesla’s case, the EV company has ordered these electrodes before the final assembly.

The cost of purchase is assessed based on cathode material which could be used in 1.3 to 1.4 million electric vehicles. This volume reflects about 70 percent of Tesla’s total production last year, which was 1.84 million vehicles.

Some Korean analyst believes this step will boost Tesla’s internal processing of battery technologies. However, the assembler needs to first ensure sufficient material supplies for internal processing.

In-house battery assembly could help the company to reduce car prices, which account for 30-40 percent of an EV price. It also enables the assembler to control the cathode material and tailor the battery for a specific model. It could also contribute to an optimized performance.

Tesla on the other hand chose LG Energy Solution to compete with its Chinese rival BYD. LG can utilize the surplus output without additional investment. The Korean company is also planning to build electrode factories outside of the home grounds including in Poland.