Toyota Motor North America and LG Energy Solution (LGES) have agreed the supply of lithium ion battery modules over a decade starting in 2025, as the Japanese automaker ramps up electric vehicle (EV) production in North America.

South Korea’s top EV battery manufacturer has agreed to supply 20 gigawatt-hours (GWh) of high nickel NCMA (nickel, cobalt, manganese, aluminium) pouch type batteries per year for use in Toyotas made locally. It is LGES’ largest single commercial contract to date, excluding joint venture deals, and its first with Toyota.

To fulfil the order LGES, will invest KRW4trn (US$3bn) in its Michigan plant to add new production lines for battery cells and modules exclusively for Toyota. The investment will expand production capacity at the plant to 40 GWh from 2025.

The deal will strengthen LGES’ position in the global EV battery market, as it challenges China’s Contemporary Amperex Technology (CATL) for global leadership by 2030. The company will have Toyota, Volkswagen Group, Honda, Hyundai Motor Group, General Motors and Stellantis as customers and expects to have eight wholly and jointly owned battery factories operating in North America by 2025.

Toyota is the largest vehicle manufacturing group worldwide and the second largest in North America. It is playing catch up in the EV market, having acknowledged last year it had focused too long on maintaining its lead in hybrid vehicles.

LGES CEO Kwon Young-soo said this first supply deal with Toyota presents “another big opportunity for us to strengthen our production capacity in North America, thereby bringing more real life, large scale progress toward electrification in the region”.

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By GlobalData

The deal will help Toyota hike global EV production to 3.5m annually by 2030, helped by the introduction of 30 new electrics. By sourcing batteries locally, its US-made EVs will qualify for tax credits under the Inflation Reduction Act (IRA).

Tetsuo Ted Ogawa, president and CEO of Toyota Motor North America, said: “Securing supplies of lithium ion batteries at scale with a long term relationship to support our multi pathway approach and growth plans for BEVs in North America is critical to achieving our manufacturing and carbon reduction plans.”