What happened
Shares of Toyota Motor (TM 0.60%) were up 2% as of 12:23 p.m. ET on Thursday after the company signed a $3 billion battery supply deal for its electric vehicles (EVs) in the U.S.
LG Energy Solution will ramp up new production lines for EV battery cells and modules, which will be made exclusively for Toyota and is scheduled to be completed by 2025. This is an important deal for the leading car manufacturer as it plans to scale its EV production through 2030.
So what
Revenue from the EV market is expected to grow 10% per year through 2028 and reach $561 billion, according to Statista. That would put annual EV production at about 17 million in 2028. One headwind that could slow down the expected growth are bottlenecks in the supply chain, especially for the complicated manufacturing process of EV batteries.
EV batteries require various minerals to manufacture, which means a shortage of materials could hurt global demand for EVs. Companies have also become extra sensitive to supply chain disruptions after what the world went through during the COVID-19 pandemic. It's for these reasons the supply deal is getting a round of applause on Wall Street today.
Now what
As the leader in global auto sales, Toyota would obviously love to translate that lead to the burgeoning EV market. By 2030, it wants to make 3.5 million EVs but that would likely leave it well behind the competition. Chinese companies are dominating the global EV market, while Tesla just delivered 435,000 EVs in the third quarter, or an annual run-rate of over 1.7 million.
