Tesla Inks $2.9B Battery Material Supply Deal With South Korean Partner: Why It's Important For The EV Giant

South Korean battery materials supplier L&F Co signed a contract with Tesla Inc. TSLA for KRW 3.83 trillion or $2.9 billion to supply materials.

What Happened: L&F Co, in a regulatory filing on Tuesday, revealed the details of its contract with Tesla. The deal is for two years, starting from Jan. 1, 2024, to Dec. 31, 2025, stated L&F Co.

The deal would further expand the U.S. electric vehicle giant’s battery manufacturing capabilities.

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L&F Co will supply Tesla with high nickel cathode materials, which are important in manufacturing EV batteries — making this new contract a key element towards Tesla’s attempts at manufacturing its own batteries and reducing dependence on other suppliers such as Contemporary Amperex Technology Co., Limited, or CATL, and Panasonic PCRFF.

Apart from Tesla, China-headquartered CATL also supplies batteries to other EV makers such as Nio Inc. NIO. Earlier this month, Ford Motor Company F made a $3.5 billion investment to build the United States' first lithium iron phosphate battery plant with the leading battery maker.

Why It’s Important: The battery is the key and most expensive component of an EV and 2022 saw supply chain challenges and a spike in input costs amid geopolitical tensions. Tesla is more vertically integrated than any other car manufacturer. Rumors suggested earlier this month the Elon Musk-led company is looking to buy lithium miner Sigma Lithium Corp. SGML.

Australian miner Magnis Energy Technologies announced a deal with Tesla earlier this month to supply battery materials. The supply arrangements will likely help the company ramp up production.

Price Action: Tesla shares were rising 1.93%, to $211.64, in premarket trading on Tuesday, according to Benzinga Pro data.

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