Tesla ditching Chinese Megapack batteries for American-made cells in a $4 billion contract

About five years ago, Tesla shifted its Megapack energy storage system (ESS) product to the safer, cheaper, and longer-lifespan lithium iron phosphate (LFP) battery chemistry. The LFP batteries are currently the most popular type when it comes to energy storage, both at the grid level and for portable power stations like the new Anker Solix C2000 that is currently discounted by 48% at Amazon.

Tesla has built two Megafactories to craft the Megapacks, one in Lathrop, California, and another in Shanghai. At both places, however, it uses Chinese LFP cells to assemble the Megapack ESS, as it pitted the two biggest battery makers, CATL and BYD, against each other for the cheapest available offer.

The Lathrop Megafactory, in particular, has the capacity to produce 10,000 Megapacks annually, and they all use CATL batteries, making them a potential target of federal Chinese import tariffs and restrictions. While Tesla is trying to remedy this by augmenting imports with an LFP battery facility in Nevada, it still uses CATL equipment there, and the quantity is nowhere near enough to replace CATL as a supplier.

LG Megapack batteries

This is why Tesla has reportedly contracted LG Energy, one of the main 2170 cell suppliers for its electric vehicles, to also make LFP batteries for its Megapack ESS business, which was one of the few bright spots in terms of sales growth in its 2025 financial report.

The most important win for Tesla is that the LFP cells will be made on US soil by a company that the US doesn't place import control limitations on, so the Megapacks would qualify for any and all made-in-America energy subsidies, be they federal or local.

LG will make batteries for Tesla in its Lansing, MI, factory, which it now wholly owns after buying the GM stake as the automaker wound down its EV manufacturing plans. Just like the current CATL cells that Tesla uses, LG will supply prismatic LFP batteries, which are the most popular ESS form factor.

The Lansing factory has an annual capacity of 50 GWh, surpassing that of Tesla's Shanghai Megafactory, and will be able to maintain the current Megapack output in Lathrop all on its own when the LFP lines go operational next year. The contract with LG is reportedly valued at over $4 billion and will run until the end of the decade. Besides LFP batteries for Megapack energy storage or 2170 EV cells, LG is said to augment the supply of 4680 batteries, the type that Tesla uses in the Cybertruck and some Model Y trims, too.