Samsung SDI Co. is set to clinch its first large-scale battery supply agreement with Tesla Inc., a deal for energy storage systems (ESS) and estimated at over 3 trillion won ($2.1 billion), according to people with knowledge of the matter on Monday.
The landmark deal underscores Tesla’s shift away from China’s Contemporary Amperex Technology (CATL), the world’s largest battery manufacturer, toward South Korean suppliers with US production bases following US tariff hikes on Chinese batteries.
To meet surging demand for ESS, used to store renewable energy powering artificial intelligence data centers, Tesla is also in talks with LG Energy Solution Ltd. to increase its ESS battery procurement by 50%, according to sources.
It was confirmed that Tesla’s executives in charges of ESS parts supply visited Seoul last week and inked an ESS battery supply deal with Samsung SDI. They are now fine-tuning the supply terms.
Under their agreement, Samsung will supply Tesla with 10 gigawatts hour (GWh) of battery cells annually for at least three years, a deal expected to rake in 1 trillion-1.5 trillion won in annual revenue.
Samsung SDI will manufacture the battery cells at its joint venture battery plant with Stellantis in Indiana, the US, which came online early this year. They will convert part of lithium iron phosphate (LFP) battery production lines into those for ESS.
“Following the production line conversion, Samsung SDI is expected to begin the supply as early as the end of last year,” said a battery industry official.
To win over Stellantis on the production line modification, Samsung SDI offered a reduction in penalty fees. Under their joint venture contract, Stellantis is obligated to pay compensation if its battery purchases fell short of the agreed volume.
The Netherlands-based automotive group accepted the proposal in exchange for modifying its production lines.
MUCH-NEED BOOST
The supply deal is expected to offer a much-needed boost to Korean battery manufacturers, grappling with a slower-than-anticipated adoption of EVs.
“The joint venture plant with Stellantis, which had been struggling with low operating rates due to the electric vehicle market slowdown, is expected to catch a break,” said a battery industry official. “With an additional supply option now on the table, the contract size could expand significantly.
The plant’s operating rate has remained below 50%. Demand has further declined since the US government halted its EV purchase subsidy of $7,500 per vehicle in September.
Samsung SDI’s entry into Tesla’s supply chain also raises expectations for broader collaboration with the company in areas such as electric vehicles, humanoid robots and spacecraft, while solidifying its presence in the US.
40GWh OF BATTERIES FROM SOUTH KOREA
LG Energy is in separate discussion with Tesla to expand its supply by 10GWh annually on top of the 20GWh they agreed to supply on an annual basis in July.
If the two sides reached an agreement on the supply increase, Tesla is expected to source a total of 40GWh batteries from South Korea, worth about 4 trillion-6 trillion won a year.
Currently, it has secured a total of 50GWh-10 GWh from its own production. Even with 40 GWh it is set to source from both LG Energy Solution and Samsung SDI, its battery supply is only half of its annual ESS target of 100 GWh.
ON LIST OF CHINESE MILITARY COMPANIES
In January, CATL was added to the US Department of Defense’s list of Chinese military companies, a move that will prevent the company building a US factory, alongside levies of around 60% on Chinese batteries.
The move may leave Korean suppliers — Samsung SDI, LG Energy Solution and SK On Co. — as viable alternatives to the world’s largest battery maker.
Panasonic is another major ESS battery supplier. But the Japanese company is already supplying EV batteries to Tesla.
Without expanding its capacity, it would be difficult to allocate additional volume for ESS, industry officials say.
Tesla is the largest provider of private power generation packages that combine solar power systems with ESS, selling them to both factories and individual households.
According to the Solar Energy Industries Association, the surge in artificial intelligence demand is expected to triple the ESS installations in the US to over 100 GWh by 2030, compared to 36.3 GWh in 2024.
