South Korea’s LG Energy Solution announced on Friday that it will be resuming a previously stalled U.S. battery project, investing $5.6 billion in Arizona to qualify for federal incentives under the Inflation Reduction Act (IRA). The decision comes after the company had reassessed a $1.3 billion investment plan due to challenging economic conditions. With the new investment, LG Energy Solution joins a growing list of suppliers and car makers expanding battery production capacity in the United States, encouraged by the IRA’s $369 billion of subsidies. The company supplies Tesla, Lucid, and other automakers.
“The company’s decision to increase investment…comes from rising demand from EV makers for locally manufactured high-quality, high-performance batteries in an effort to satisfy the Inflation Reduction Act’s EV tax credits,” LG Energy Solution said in a statement.
The Arizona plant is the second U.S. battery project announced by LG Energy Solution since the IRA became law in August. The company previously announced a $4.4 billion battery plant in Ohio with Japan’s Honda Motor Co in October. The new Arizona factory will consist of two facilities – one for cylindrical batteries for EVs and another for lithium iron phosphate (LFP) pouch-type batteries for energy storage systems (ESS).
The investment of $5.6 billion will be spent building the cylindrical battery facility with a capacity of 27 gigawatt hours (GWh), and the rest for the LFP pouch-type battery facility with a capacity of 16 GWh. Both facilities are expected to break ground this year. LG Energy Solution said that production of EV batteries from the new plant would begin in 2025 and ESS batteries in 2026.
“When LGES first announced its Arizona plan, Tesla was probably not in the proposed plant’s client list, but it is now likely to be in the list and one of the major reasons why investment has increased sharply,” said Rho Woo-ho, an analyst at Meritz Securities.
This decision by LG Energy Solution to increase investment in the Arizona plant underscores the importance of incentives to encourage investment in the development and manufacturing of EV batteries in the United States. The IRA has been instrumental in spurring investment by LG Energy Solution and other companies in the EV battery market. As demand for EVs continues to grow, these investments will be critical to supporting the transition to a more sustainable transportation system.
