Tesla, LG Energy in $4.3bn Michigan battery plant deal
Three-year supply agreement secures domestic LFP cells for Megapack 3 energy storage systems
Tesla and LG Energy Solution have confirmed plans to build a $4.3 billion lithium iron phosphate battery manufacturing facility in Lansing, Michigan, marking a significant step in the electric vehicle maker's strategy to strengthen its domestic supply chain for energy storage products.
The plant, which will have an annual production capacity of 50 gigawatt-hours, will produce battery cells specifically for Tesla's Megapack 3 energy storage systems starting in the third quarter of 2027. The three-year supply agreement runs from August 2027 through July 2030, providing Tesla with a secure domestic source of LFP cells as it seeks to reduce reliance on Chinese suppliers for its rapidly growing energy storage business.
"This is a strategic move to bolster Tesla's North American supply base for energy storage," according to the U.S. Department of the Interior, which confirmed the agreement on Tuesday. "The Michigan-produced LFP cells are slated to power Tesla's Megapack 3 energy storage systems, which are manufactured in Houston."
The partnership builds on LG Energy Solution's acquisition of General Motors' stake in the Lansing plant in May 2025. The facility, formerly known as Ultium Cells 3, is being converted to produce LFP batteries specifically for energy storage systems, with equipment orders for new production lines already placed and mass production anticipated to begin in the latter half of 2026, according to industry reports.
Tesla's energy storage business has emerged as one of its strongest growth drivers. In 2025, the division recorded revenue of $12.77 billion, marking a 27% increase year-over-year, while global energy storage deployments surged 49% to 46.7 GWh. The segment achieved a strong gross margin of 28.7% in the fourth quarter of 2025, with gross profit hitting a new high of $1.1 billion, making energy storage a key highlight in Tesla's 2025 financial results.
The Megapack 3, Tesla's latest generation grid-scale energy storage system, offers approximately 5 MWh of capacity per unit, representing a 25% increase over its predecessor. The enhanced performance is attributed to new, larger 2.8-liter LFP battery cells, an improved thermal management system, and simplified electrical connections.
To meet growing demand, Tesla is expanding its production capacity aggressively. As of 2025, the company operated Megapack manufacturing facilities in Fremont, California, and Shanghai, China, each with an annual production capacity of 40 GWh. A new Megafactory under construction in Houston, Texas, is slated to commence operations by the end of 2026 with a planned annual output of 50 GWh of Megapack 3 units. Upon completion, Tesla's combined global Megapack production capacity will approach 133 GWh annually.
Tesla Energy Storage maintained its leading global position in 2025, leveraging its manufacturing scale and integrated product portfolio. In North America, Tesla held the top share for the third consecutive year in 2024 with a 39% market share, though competitive pressure from players like Sungrow is intensifying globally.
The domestic battery supply deal comes as Tesla's stock has faced volatility. Shares closed at $395.56 on March 17, down roughly 20% from December highs, having recently fallen below its 200-day moving average for the first time since September. The stock remains 87.2% higher year-on-year despite recent declines, with a 52-week trading range of $214.25 to $498.83.
Wall Street analysts maintain a "Hold" consensus rating on Tesla, with approximately 48% of analyst ratings at "Buy," 30% at "Hold," and 22% at "Sell." The average 12-month price target ranges from $399.25 to $406.84, with individual forecasts spanning a wide range from a low of $25.28 to a high of $600.00, according to TipRanks data.
Recent analyst actions highlight the divergent views on Tesla's prospects. GLJ Research reiterated a "Sell" rating with a $25.28 target on March 12, while Wells Fargo lowered its target to $125.00. Conversely, Bank of America Securities maintained a "Buy" rating with a $460.00 target, and Wedbush kept an "Outperform" rating with a $600.00 price target.
Looking ahead, Tesla anticipates increasing deployments of Megapack 3 and its new Megablock solution, a prefabricated power block integrating four Megapack 3 units. The company reports a strong and globally diversified backlog for its energy storage products. However, Tesla expects margin compression in 2026, attributed to increased low-cost competition, policy uncertainties, and tariff costs.
The global energy storage market is projected to expand significantly, from approximately 100 GWh annually in 2025 to over 500 GWh by 2030, driven by the increasing integration of renewable energy. Tesla plans significant capital expenditures exceeding $20 billion in 2026, more than doubling its 2025 spending, with a substantial portion allocated to its energy storage sector including the new Brookshire Megapack factory.
In a related development, Tesla Energy received a license from the UK energy regulator Ofgem on March 11, enabling the company to directly supply electricity to homes and businesses across England, Scotland, and Wales. This move allows Tesla to implement its Texas-based retail electricity model in Britain, leveraging its existing Megapack storage systems and virtual power plant networks.