Tesla signs major deal with China defying trade tensions

Tesla has confirmed its first deal to build a large-scale battery storage facility in China, signing a 4 billion yuan (about $556 million) agreement with the Shanghai municipal government and China Kangfu International Leasing.

In its Weibo post, Tesla described the planned installation as a “smart regulator” for city power supplies, saying it can flexibly shift energy resources as needed. It added that the facility will “effectively solve the pressure of urban power supply and ensure the safe, stable, and efficient electricity demand of the city.” After completion, the project is expected to stand as the largest grid-side energy storage station in China.

Tesla’s statement noted that its Shanghai battery plant produced more than 100 Megapacks during the first quarter of this year. Each Megapack is capable of delivering up to one megawatt of electricity for four hours.

Battery energy storage systems on a utility scale help power networks keep supply and demand in check. They’re vital because they store energy when solar and wind output falls and release it when needed.

China expands grid storage goals with Tesla amid trade tensions with US

On Tesla’s website, each Megapack is listed under $1 million in the United States, but it hasn’t revealed the price in China.

The deal marks a milestone for Tesla, which faces homegrown rivals CATL and BYD in the race to supply grid-scale batteries. CATL alone holds about 40% of the global market for battery cells and packs. Reuters has also reported that CATL was expected to provide the battery cells and modules for Tesla’s Megapacks.

This deal comes at a tense time, with U.S.-China trade strained after President Trump slapped tariffs on Chinese imports. Elon Musk, Tesla’s chief executive, was aligned with Trump in the early stages of that trade conflict, a factor that complicated the outlook for American automakers in China.

Demand for large battery installations in China remains strong. In May 2024, Beijing set a goal to add nearly 5 gigawatts of storage capacity by the end of 2025, lifting the nation’s total to 40 gigawatts. Meanwhile, Tesla has begun exporting its Megapacks from Shanghai to Europe and other parts of Asia to serve global customers.

Worldwide, battery storage capacity jumped by 42 gigawatts in 2023—nearly double the increase seen in 2022, according to the International Energy Agency.