Toyota Motor is accelerating its effort to build a new supply chain for electric-vehicle batteries, reducing its dependence on its own group. The Japanese auto giant announced on Thursday that it has signed a contract with South Korea’s LG Energy Solution to supply lithium-ion batteries, which will be used for EVs that Toyota will produce in North America from 2025.
Toyota’s EV Shift Forces Strategic Shift in Battery Procurement
Toyota’s decision to partner with LG Energy Solution is a significant shift, as the Japanese automaker has traditionally followed a strategy of procuring key components within its own group. However, the rapid shift to EVs has brought Toyota to a turning point, as it needs to secure a large supply of batteries in order to meet its ambitious EV sales targets.
LG Energy Solution
LG Energy Solution is the world’s second largest battery maker, after China’s CATL. The company has a strong track record of supplying batteries to major automakers, including General Motors, Honda, Stellantis, and Hyundai Motor.
LG Energy Solution will invest about $3 billion in its plant in Michigan to build a new battery production line for Toyota. The plant is scheduled to be operational in 2025, with an annual production capacity of 20 gigawatt-hours, equivalent to about 280,000 units of Toyota’s current bZ4X model.
Toyota’s Battery Procurement Strategy
Toyota plans to increase global EV sales to 1.5 million units in 2026 and 3.5 million in 2030. Having sold only 24,000 in 2022, the company must increase its sales by more than 60 times by 2026. Stabilizing its battery procurement network is essential if EV production is to proceed at a rapid pace.
The onboard battery is a core component for EVs. It accounts for 30% to 40% of a vehicle’s production cost, and its performance determines the cruising range. Toyota’s battery production capacity was only 6 gigawatt-hours as of 2021, but it plans to increase this to 280 gigawatt-hours by 2030.
Toyota has traditionally followed a strategy of procuring key components within its group but is finding it difficult to cover batteries solely through in-house production. Therefore, the company is focusing on expanding procurement to outside of its keiretsu. “We will secure the necessary volume speedily by improving in-house production capacity and collaborating with partners,” Toyota President Koji Sato said.
The partnership with LG Energy Solution is a major step forward for Toyota’s EV ambitions. It will give the company access to a secure supply of high-quality batteries, which is essential for meeting its sales targets.
