South Korean battery material supplier L&F Co. slashed its Tesla supply contract value from $2.9 billion to just $7,386, a 99% reduction announced December 29. The high-nickel cathode materials deal, originally signed in February 2023, was intended for Tesla's 4680 battery cells through December 2025.
Tesla's demand for 4680 cells has experienced what industry reports describe as a 'catastrophic drop' amid slower electric vehicle adoption in North America, according to Electrek. Analysts point to Tesla's difficulties scaling production of the larger-format batteries and weaker-than-expected Cybertruck sales as primary factors.
The Cybertruck remains Tesla's only vehicle using the company's proprietary 4680 cells. Elon Musk originally positioned the 46mm diameter, 80mm height cells as key to halving battery costs and enabling cheaper electric vehicles.
Yuanta Securities Korea researcher Lee Anna noted Tesla is comprehensively reevaluating 4680 battery mass production speed and scale. "As EV demand in the North American region has slowed faster than expected," she explained, adding that Tesla appears to be terminating existing contracts and shifting discussions to new project units.
Despite the setback, Tesla's long-term 4680 strategy remains unchanged according to analysts. The transition from 2170 to 4680 cells using dry electrode processes continues as Tesla's roadmap for reducing EV costs, though schedules face delays due to technical maturity and demand issues.
L&F's future performance now hinges on Rivian-bound volumes ordered in March 2025, scheduled for full-scale production and shipment from 2026. Discussions regarding supply through LG Energy Solution and new form factors also continue, according to Yuanta Securities analysis.
The contract reduction reflects broader strain across South Korea's battery sector. LG Energy Solution reportedly faces about 13.5 trillion won in revenue losses after Ford and Freudenberg terminated supply contracts, while SK On ended its battery joint venture with Ford in the United States.
Analysts predict renewed interest in the secondary battery sector could emerge in 2026, centered around energy storage systems for artificial intelligence data centers. This shift follows a series of negative disclosures related to electric vehicles across the industry.
Ford has announced a $19.5 billion writedown and plans to scrap multiple electric vehicle models, underscoring a wider pullback from EV investments. Policy uncertainty and weakening demand continue reshaping the automotive battery landscape.
Tesla shares closed at $459.64 on December 29, down 3.27% amid investor concerns over the battery program's viability. The company's fourth quarter earnings call, expected soon, may provide clarity on Tesla's revised battery roadmap and production timelines.
