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LG Energy Solution Ltd (LGES) said on Friday it will invest 7.2 trillion won ($5.56 billion) to build what will be its second standalone battery manufacturing site in the United States, sticking to its earlier plan after a period of reconsideration.

LGES will spend 4.2 trillion won to build a cylindrical battery plant in Queen Creek, Arizona, that targets an annual production capacity of 27 gigawatt hours, equivalent to powering 350,000 all-electric cars, the company said in a release.

LGES runs an independent battery plant in Michigan. It will invest 3 trillion won to build a separate facility on the same site to produce lithium iron phosphate (LFP) batteries for energy storage systems (ESS), with an annual production capacity of 16 GWh, reports Yonhap news agency.

The decision, finalised at a board meeting earlier in the day, marks a sharp increase in the Arizona investment, compared with the original 1.7 trillion won plan announced in March last year. The initial investment had not included the plan for the LFP factory.

LGES, the world's second-largest battery maker after China's CATL, had withdrawn the plan a few months later, citing a spike in costs amid runaway global inflation.

However, in the recent earnings call in January this year, LGES said it was considering putting the plan back on track.

Speculation has arisen that the proposed Arizona plant will be built to supply Tesla for its vehicles in the U.S. market, in a move to qualify for new U.S. government subsidies for EV and EV battery makers investing in the U.S., under the new Inflation Reduction Act (IRA).

LGES supplies its batteries to Tesla in China.

The new cylindrical battery plant will break ground this year and aim to start operations in 2025. It will produce the widely-used 2170 cylindrical cells and supply major U.S. clients, LGES said.

The LFP battery plant will manufacture pouch type cells. The commercial operation is expected to begin in 2026.