Electric Vehicle Battery Bet Looks Set To Pay Off Big For Korea’s LG

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Electric Vehicle Battery Bet Looks Set To Pay Off Big For Korea’s LG

20th February 2020 Battery global production manufacturing market repots materials news production study technologies 0

When Tesla was looking for battery suppliers for its Chinese-made electric vehicles, it signed deals with two companies. One was an obvious choice: China’s CATL, the biggest EV battery maker in the world. The other was the LG Chem.

It was a big deal for LG Chem, the flagship affiliate of LG Corp., one of the four largest family-controlled conglomerates in South Korea called chaebols. Since Tesla announced the deals with LG Chem and CATL on January 29, shares of the Korea-listed company surged about 15% as of Monday.

It was also an early success for Koo Kwang-mo since the 42-year-old took over the reins of the LG group after the death of his father and former chairman Koo Bon-Moo in 2018. Under the new leadership of Kwang-mo, who is No. 17 on Forbes’ latest South Korea Rich List with $1.75 billion, LG has been spending billions on the emerging EV battery market globally—and its efforts are starting to pay off.

The Tesla deal came after years of uncertainty in China. In 2015, the Chinese government created a list of recommended battery suppliers that carmakers had to use if they wanted to qualify for generous subsidies. The list excluded foreign companies, allowing CATL and Warren Buffett-backed Chinese EV maker BYD to dominate battery supplies in the world’s biggest EV market and boost their fortunes. In Forbes’ most recent China Rich List, CATL founder Robin Zeng is No. 48 with $5.85 billion and BYD founder Wang Chuanfu is No. 79 with $4.9 billion.

Meanwhile, foreign battery suppliers like LG Chem and Korean peer Samsung SDI had to use their existing Chinese factories to produce batteries for export elsewhere.

Then, in June last year, LG Chem breathed a sigh of relief as China abolished the list to wean the EV sector off government support. Earlier that year, LG Chem said it was investing a total of 1.2 trillion won ($1.07 billion) to expand its two Chinese battery plants, both in the eastern city of Nanjing.

LG Chem has also been making inroads in the U.S. In December, the Korean company partnered with GM to build a $2.3 billion EV battery plant in Ohio, which will be one of the biggest battery facilities in the world. Construction of the plant will begin later this year.

And it’s also ahead in Europe, an important EV market where carbon-emissions regulations are especially tough. At the beginning of this year, the European Union’s tightened rules came into force, which penalizes carmakers €95 (about $104) for every gram per kilometre exceeding the new carbon dioxide emissions limit of 95 g/km, multiplied by the total number of cars they sell in Europe.

As carmakers in Europe shift to EVs to avoid the steep fines, LG Chem has been preparing to meet the increase in demand. The Korean company broke ground in late 2017 on its plant in Poland, in the southwestern city of Wroclaw, which it claims was the first large-scale automotive lithium-ion production plant in Europe. And in 2018, LG Chem said it is investing $571 million to expand its Wroclaw plant until 2021.

The increased activity in building battery manufacturing facilities near car assembly factories helps LG Chem stay ahead in Europe, says Chloe Herrera, a research associate at Lux Research. “[Lithium-ion] batteries are difficult to transport, and European governments are starting to build policy support to incentivize battery production locally,” Herrera notes. Wroclaw is about 100 miles from the border with Germany and its carmakers.

To be sure, competitors CATL and SK Innovation, part of the SK chaebol, also announced plans for factories in Europe. CATL broke ground in October on its plant in Germany, in the eastern state of Thuringia—the Ningde-based battery giant’s first factory overseas. While Seoul-based SK Innovation is currently constructing its second plant in Hungary. Still, LG Chem has a higher expected capacity output, notes Herrera.

The billions spent in recent years show how important EV batteries are for LG, which wants to be a leader in a hot area with a high barrier to entry. The conglomerate showed how serious it is about competing in the EV battery space last year when it sued SK Innovation in the U.S.—a rare public dispute between chaebols. LG Chem filed a lawsuit against SK Innovation in the U.S. International Trade Commission, accusing the company of stealing trade secrets regarding lithium-ion batteries and hiring its former employees; SK countersued in Seoul in October.

According to data by Korea-based SNE Research published in December, LG Chem had the third-largest market share (14.2%) of the global EV battery market in October, after CATL (26.7%) and Japan’s Panasonic (17.5%).

Clients of LG Chem include GM, whose relationship in EV batteries stretches back to 2008 for the Chevrolet Volt; Ford and now Tesla. “LG Chem has a large number of contracts for automotive electric batteries and is generally considered to have elite-quality levels,” says Mike Ramsey, senior research director at Gartner.

LG Chem still makes most of its profits from its petrochemical business, which subsidizes the company’s battery investments. The company does not break down figures for its EV batteries, but LG Chem’s CFO Cha Dong-seok said in its 2019 earnings report released last week that the business “reached the break-even point.”

Richard Kim, a principal analyst at IHS Markit, expects LG Chem to generate more revenue and profit this year thanks to improved yield rate of production, which had been an issue until the end of 2019.

“However, intense competition is expected as the EU-backed battery cell supply chain gets into full swing in the long run,” Kim adds.

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All credits to – John Kang original source link below:

https://www.forbes.com/sites/johnkang/2020/02/10/electric-vehicle-battery-bet-looks-set-to-pay-off-big-for-koreas-lg/#7d95dd9b127a

 

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