Tesla, Korea's EcoPro presumed to enter battery materials deal

Tesla Inc., the world’s No. 2 electric vehicle maker, is believed to have agreed to procure battery ingredients from South Korea’s EcoPro Materials Co. to conform to US requirements for federal tax benefits on clean cars, industry sources in Seoul said.

EcoPro Materials, a precursor manufacturer, said on Monday it has signed a mid- to long-term supply contract with a US automaker. In its filing to a South Korean financial regulator, it did not provide details such as the customer’s name or the deal’s volumes and values.

“Details including supply quantities and values have yet to be specified,” said the unit of South Korea’s major electric vehicle battery materials producer EcoPro Group. “We will supply (materials) based on the customer’s request and discussions.”

The more batteries the US EV manufacturer produces, the more precursors EcoPro Materials will supply, according to industry sources in Seoul. The two companies have been in talks about the deal since last year, the sources added.

The sources said Tesla is likely to be the customer as the US company is the only EV maker to ink such supply deals.

The maker of the fully electric mid-size sport utility vehicle Tesla Model Y does not guarantee minimum order quantities, those sources said.

“Tesla usually signs deals without minimum purchase volume guarantees as the company avoids any inventory issues by buying only what it needs according to demand,” one of the sources said.

TO MEET FOREIGN ENTITY OF CONCERN RULES

Tesla may have selected EcoPro Materials for its precursor procurements to adhere to US regulations, which deem certain battery materials procured from foreign entities of concern (FEOCs) -- notably businesses significantly influenced by China -- as ineligible for EV subsidies of up to $7,500 per vehicle, sources in Seoul said.

Precursors, a core material for cathodes, account for some 70% of production costs for the positive end of a lithium-ion battery. The global precursor market is currently dominated by Chinese companies as the country has many mines and cheap labor.

EcoPro Materials decided to invest 957.3 billion won ($719 million) by August 2025 in new facilities including a precursor production line, to meet growing demand, according to the company last week.

Tesla is expected to seek more materials from South Korean suppliers as it is ramping up the production of large-size cylindrical batteries with the 4680 form factor, industry sources said.

The so-called 4680 battery, which measures 46 millimeters in diameter and 80 mm in length, is heralded as a game-changer in the battery industry as it is known to increase energy density by five times and output by six times compared to the conventional 2170 type and boost electric vehicles' mileage by 16% on average.

“Supplies of beneficiaries from FEOC rules such as L&F, Lotte Energy Materials and SK IE Technology are likely to increase,” said a battery industry source in Seoul.

L&F Co. is currently providing cathodes to Tesla, while Lotte Energy Materials Corp. and SK IE Technology Co. are selling copper foils and battery separators to the US EV maker, according to industry sources in Seoul.

Write to Hyung-Kyu Kim at khk@hankyung.com
 

Jongwoo Cheon edited this article.