Decoding the LGES-Mercedes Battery Deal: Why the 4680 Cell is the New Battleground

Is the global EV supply chain shifting its allegiance away from China, and is the humble cylindrical battery the key to that geopolitical pivot? That’s the major question following the announcement of a massive, long-term battery supply contract between South Korea’s LG Energy Solution (LGES) and Germany’s Mercedes-Benz Group.

LGES confirmed a 7.5-year supply agreement, valued at approximately $1.4 billion (2.06 trillion Korean Won), for batteries to be delivered between March 2028 and June 2035 for the North American and European markets. This deal, while only one of several between the two giants, signifies a crucial strategic alignment, especially given the strong indication that it will involve LGES’s next-generation 4680 EV battery cells.

H3: The Strategic Importance of the 46mm Cylindrical Cell

The industry buzz centers on the rumored technology transfer: LGES is widely expected to supply its 46-series cylindrical batteries to Mercedes-Benz. These larger-format cells (typically 46mm in diameter) are the focus of intense R&D globally because they promise a superior blend of energy density, faster charging capability, and structural benefits over older formats.

• Validation for Non-Tesla Players: While Tesla pioneered the 4680 format, this contract provides massive validation from a top-tier luxury OEM outside of Tesla, confirming the technology’s viability for premium vehicles.
• Competitive Edge: Industry observers suggest that LGES winning this substantial order over its Chinese rivals underscores the perceived technological advantage of Korean battery firms in this advanced chemistry.
• Market Position: These high-value cells command premium pricing (estimated between $90 to $110 per kWh), aligning perfectly with Mercedes-Benz’s luxury vehicle segment needs.

For context, reports indicate LGES has secured over 150 GWh of 46-series contracts with Mercedes-Benz across multiple agreements, with some estimates valuing the total relationship in the billions of dollars.

H2: Deconstructing the Geopolitical Supply Chain Win

Perhaps the most significant takeaway for Western investors is the explicit focus on North American and European supply. The contract details underscore the global automotive industry’s necessary pivot toward regionalized supply chains, driven by policy.

H3: IRA and EU Battery Law Compliance

For Western automakers like Mercedes-Benz, securing components from non-aligned regions is no longer optional—it’s a prerequisite for market access and incentives.

• US Inflation Reduction Act (IRA): The IRA mandates stringent local sourcing percentages for batteries and components to qualify for substantial consumer tax credits. LGES is actively building its North American capacity, including a dedicated 4680 facility in Arizona, to meet these criteria.
• European Stance: The EU’s evolving Battery Regulation places increasing importance on factors like the battery’s carbon footprint and material sourcing, incentivizing local or friendly-nation production.

This regional focus allows Mercedes to benefit from subsidies while de-risking its operations from potential trade volatility. See our analysis on Chinese dominance in battery raw materials for deeper context on this supply chain decoupling.

H2: Analyzing the Technology Mix: Beyond the 4680

While the 4680 win is for high-end models, it’s important to note the diversification in LGES’s portfolio for Mercedes.

• Recent reports suggest that newer deals may also involve Lithium Iron Phosphate (LFP) batteries.
• LFP chemistry is typically geared toward mid- to lower-priced EVs, indicating Mercedes’ strategy to electrify a broader market segment, not just the luxury tier.

This dual-track approach—advanced cylindrical cells for premium/long-range models and LFP for mainstream models—positions LGES as a versatile, one-stop shop for the German OEM, further cementing their relationship. In contrast, LGES previously secured over $11 billion in separate agreements with Mercedes, showing the cumulative nature of this partnership.

H3: Recommended Reading for Western Stakeholders

To truly understand the competitive landscape where LGES is thriving against rivals, understanding the operational pressures is key. We recommend: ‘The Battery: How an Inventions Revolution Is Revolutionizing the World’ by David Wallace-Wells, for a broader look at the technological stakes involved in this sector.

Conclusion: A Shot Across the Bow to Chinese Competitors

The LGES-Mercedes contract is more than a simple transaction; it is a loud signal to the global market. It confirms that high-tier Western OEMs are willing to commit long-term capital to secure non-Chinese battery supply chains, betting heavily on the next generation of cell technology. For Western investors tracking the EV sector, LGES’s proven ability to secure these strategic, policy-aligned partnerships—especially when reportedly beating out major Chinese players—marks them as a critical player to watch in the post-IRA automotive world.

Disclaimer: This analysis is based on publicly reported data, including filings from LGES and news reports from sources like Reuters and Bloomberg. Market values and specific contract details remain subject to change.