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South Korea's LGES revives Arizona battery factory with $5.6bn

New investment from EV battery maker follows discussions to supply Tesla

LG Energy Solution's planned Arizona plant, which will break ground this year, is its second U.S. battery project announced since the U.S.'s Inflation Reduction Act became law in August.   © Reuters

SEOUL (Reuters) -- South Korea's LG Energy Solution said on Friday it would resume a stalled U.S. battery project in Arizona with a $5.6 billion investment to qualify for federal incentives rolled out under the Inflation Reduction Act.

The world's third-ranked electric vehicle battery maker said in June it was reassessing what was then a 1.7 trillion won ($1.3 billion) investment plan because of "unprecedented" economic conditions, just three months after it was unveiled.

With the new investment plan, LGES joins a growing list of suppliers and car makers expanding battery production capacity in the U.S., encouraged by the IRA's $369 billion of subsidies. The company supplies Tesla, Lucid Group and other automakers.

Tesla said last month it will focus battery cell production in the U.S. because of the IRA framework.

The Arizona plant is the second U.S. battery project LGES has announced since the IRA became law in August. The company announced a $4.4 billion battery plant in Ohio with Japan's Honda Motor in October.

"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," LGES said in a statement.

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, LGES said.

Out of the 7.2 trillion won ($5.6 billion) investment, 4.2 trillion won will be spent building the cylindrical battery facility with a capacity of 27 gigawatt hours, and the rest for the LFP pouch-type battery facility with a capacity of 16 GWh. Both facilities will break ground this year.

"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 major reasons why investment has increased sharply," said Rho Woo-ho, an analyst at Meritz Securities.

Friday's announcement follows an announcement from LGES in January that it had been in "active discussion" with Tesla and EV startups to supply batteries from the proposed factory.

LGES said production of EV batteries from the new plant would begin in 2025 and ESS batteries in 2026.

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