Toyota and LG Energy Solution have entered into a $3 billion battery supply agreement to support Toyota's electric vehicle (EV) production in the United States.

This deal will play a crucial role in expanding Toyota's battery EV lineup, which includes a new model scheduled for assembly at a manufacturing plant in Kentucky, the company's largest facility globally, starting in 2025.

LG Energy Solution CEO Youngsoo Kwon expressed enthusiasm about the partnership, stating, "The one thing I wanted to change was the fact that we don't have any business with the number one player, Toyota." He also revealed that LG Energy Solution will supply Toyota with 20 gigawatts worth of batteries annually starting from 2025.

Toyota has maintained its position as the world's top-selling automaker for three consecutive years, selling nearly 10.5 million vehicles in 2022. In response to this collaboration, Toyota's Tokyo-listed shares rose by 2.91% in morning trading.

LG Energy Solution is not only partnering with Toyota but also supplying other automotive giants like General Motors in the United States, Hyundai in South Korea, and Honda in Japan. In a strategic move to capitalize on tax credits, LG Energy Solution announced plans to build a $4.3 billion EV battery plant in the U.S. with Hyundai less than five months ago. Under the Inflation Reduction Act, purchasers of U.S.-made vehicles are eligible for up to $7,500 in tax credits.

"Inflation drew up investment amounts and labor costs have gone up for various reasons. Things are tough. The IRA tax credit is big, and it gets offset in the U.S. market. That's why we are investing, building factories and supplying in the U.S.," explained Kwon.

LG Energy Solution will invest approximately 4 trillion Korean won ($3 billion) to establish new production lines exclusively for Toyota's battery cells and modules, with completion scheduled for 2025.

Toyota has ambitious plans to offer 30 battery-electric vehicle models across its Toyota and Lexus brands and produce up to 3.5 million BEVs annually by 2030.

In terms of EV battery production, LG Energy Solution currently ranks as the world's third-largest producer, following Chinese EV player BYD, according to data from South Korean energy market research firm SNE Research. However, Chinese companies, particularly CATL, dominate the global EV battery market, capturing 36.6% from January to July this year.

CEO Youngsoo Kwon acknowledged the competition, stating, "It's essentially a competition between Chinese and Korean companies, though we have Japan's Panasonic too. I think it's too early to fully assess the capabilities of the Chinese battery makers. This is a global business, so it needs to involve global operations."

Kwon further emphasized the challenges of global operations, highlighting the importance of not just producing in one country but successfully navigating operations in various regions.