South Korea’s LG Energy Solution announced during its conference call on January 27 that it is currently in “active discussions” with its major client Tesla and other EV startups about its proposed Arizona plant that it plans to use in the production of the battery supply.
Unfortunately, the tech giant has not provided further details about the ongoing discussions, per Korea’s Premium Business News Portal Business Korea.
“We are discussing with Tesla the supply of cylindrical batteries to be produced by the Arizona plant. We will announce a detailed plan as soon as the plan is finalized.”
LG Energy Solution
Previous apprehension about the Arizona plant
LGES previously disclosed plans to allocate 1.7 trillion won for the proposed cylindrical battery plant in Queen Creek, Arizona, in March 2022. However, the company suddenly changed course in July 2022 to thoroughly review the proposed plant due to inflation and other factors.
Now, LGES apparently modified key areas of its initially proposed plan. The changes in the plan include the plant’s size, and mass production schedule, among others, due to business environment changes, as per an industry official familiar with the matter on January 29.
“Even at the time of announcing the review, LG Energy Solution was not considering scratching off the investment plan.”
It will restart the project sooner or later, I think. With the implementation of the Inflation Reduction Act (IRA), demand for cylindrical products has risen further, and orders keep coming from customers, I heard. The size of LG Energy Solution’s investment may expand further.”
Industry official familiar with the matter
Why is the proposed Arizona plant important for Tesla?
Tesla is currently acquiring cylindrical batteries from LG Energy Solution made in the latter’s Chinese plant. That said, the automaker uses LG-made cylindrical batteries for its EVs offered in China.
However, Tesla now needs EV batteries made in North America, as it is a crucial requirement to qualify for the federal tax credits under the Inflation Reduction Act. That said, industry insiders suggest that Tesla may have requested the South Korean battery giant to pursue its Arizona plant.
It is not surprising that Tesla may look into additional supply along with its other sources and internal production, given that the automaker needs sufficient 2170-type battery cell supplies in North America.
LGES’ 2022 performance
In 2022, LG Energy Solution reported a whopping 25,598.6 billion won in sales and 1,213.7 billion won in operating profit, based on its 2022 Earnings Presentation. Notably, the company seeks to increase investment by over 50% from 2022 levels and increase annual sales by 30% this year.
“A record-high annual revenue was made possible, as battery shipment has increased across all product line-ups in our proactive response to the increased demands for EVs and power grid energy storage systems (ESS).
Thanks to economies of scale led by sales growth, cost saving achieved through improving productivity, and expanding price-competitive metal sourcing, annual operating profit has also shown a significant growth compared to the previous year.”
LG Energy Solution CFO Chang Sil Lee
