Elon Musk’s Tesla signs deal to build China’s largest grid-scale battery plant

Tesla has signed its first deal to build a grid-scale battery power plant in China amid trade tensions between Beijing and Washington.

Tesla said in a post on China’s Weibo social media platform that the project will become the largest grid-scale battery power plant in China when completed.

Utility-scale battery energy storage systems help balance supply and demand on the power grid, and are increasingly important in addressing supply-demand imbalances caused by intermittent energy sources such as solar and wind.

The deal, worth 4 billion yuan ($556 million), was signed between Tesla, the Shanghai local government and financial firm China Kangfu International Leasing, Reuters reported, according to a report from Chinese newspaper Yicai.

Tesla said its Shanghai battery factory produced more than 100 Megapacks — batteries designed for large-scale deployment on the grid — in the first quarter of this year. A Megapack can provide up to 1 megawatt of power for four hours.

“The grid energy storage station is an ‘intelligent regulator’ for city power that can flexibly adjust grid resources,” Tesla said on Weibo, according to a Google translation.

The project will “effectively relieve the pressure on the city’s power supply and ensure safe, stable and efficient electricity demand,” Tesla added. “Upon completion, the project is expected to become the largest grid energy storage project in China.” Each Megapack retails for less than $1 million in the United States, according to the company’s website, but prices in China have not been announced.

The deal is significant for Tesla, as Chinese companies like CATL and BYD compete with similar products. The two companies have made significant strides in battery development and production, with CATL accounting for about 40% of the global market share.

CATL is also expected to supply the battery cells and battery packs used in Tesla’s Megapacks, according to a Reuters source.

Tesla’s deal with a local Chinese government is also significant, as it comes after US President Donald Trump imposed tariffs on Chinese imports, straining geopolitical relations between the world’s two largest economies.

Tesla CEO Elon Musk was also a close ally of President Trump during the early stages of the trade war, which further complicated the business prospects of US automakers in China.

However, demand for grid-scale energy storage systems in China is huge. In May last year, Beijing set a new target of adding nearly 5 gigawatts of battery-powered electricity by the end of 2025, bringing the total capacity to 40 gigawatts.

Tesla has also exported Megapacks from its Shanghai factory to Europe and Asia to meet global demand.

According to the International Energy Agency (IEA), global energy storage capacity increased by 42 gigawatts in 2023, nearly double the increase from the previous year.