Tesla agreed to buy batteries from South Korea based LG Chem and it will be used in Shanghai manufactured Model 3 cars initially. Later, the batteries will power the cars from the Model Y. This is going to be the first-ever Tesla cars manufactures outside the US soil, as a part of the EV pioneer’s push for the world’s biggest market for new-energy vehicles.

However, some insiders did comment that the supply agreement is not exclusive to LG Chem. Other manufacturers, if and when they produce usable batteries for Tesla cars, can also be a part of Tesla’s agreement when the time comes. LG Chem will supply Tesla with 21700 type battery cells.

Tesla has also been in talks with the Chinese battery manufacturer Contemporary Amperex Technology Co. Ltd. about using its batteries. On the other hand, Tesla has had a long relationship with Japan’s Panasonic Corp which had been making batteries for Tesla for a long time now.

The Chinese market has become an indispensable one for Tesla Corp. as it has been facing some loss on its US front. However, Tesla cars being foreign goods so to speak, are costlier in China than China’s home manufactured cars. But this agreement seems like a good deal for LG Chem as its agreement with such a big company as Tesla will certainly label them as a well-sought out company in the future.

After Tesla signed the agreement, LG Chem’s share skyrocketed to 3.9% and was up 2.8% in Seoul.

LG Chem is mainly looking into producing more electric-vehicle batteries doing away with chemical production. Tesla, on the other hand, is in talks with the Chinese government to have its own manufacturing facility in China and hopes to start producing cars by the end of 2019. Tesla is up against some tough competitions such as BYD Co., NIO Inc., and BMW AG and Daimler AG.

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