Nikkei: To challenge the CATL era, LG Energy plans to expand production capacity in six countries

On January 20, according to Nikkei, South Korea's LG Energy is eyeing the crown of electric vehicle batteries from China's Ningde era, planning to expand production capacity in six countries and use its potentially record stock market debut proceeds to develop cutting-edge power batteries.

Source: Nikkei

LG Energy and parent company LG Chem are aiming to raise 12.75 trillion won ($10.7 billion) through the former's January 27 IPO. That's more than double the current record of 4.9 trillion won held by Samsung Life in South Korea in 2010. If successful, this would bring LG Energy's valuation to about 70 trillion won.

The world's second-largest electric vehicle battery maker's hyperscale IPO has sent a frenzy in South Korea. Institutional investors' bids exceeded the stock supply of 2,000 to 1. As demand for electric vehicle batteries surges, some observers believe LG Energy's market capitalization is expected to reach the 200 trillion won mark.

At an event on Jan. 10, LG Energy CEO Kwon Young-soo said the company would increase its battery capacity by 2.6 times to 400 GWh over three years.

In the three months to the end of December, the company's outstanding orders jumped from 160 trillion won at the end of June to 250 trillion won. Currently, LG Energy supplies batteries to automakers such as Volkswagen, Tesla and Audi, as well as alliances of Renault, Nissan and Mitsubishi Motors. Although these contracts are considered long-term, the company still needs to increase production capacity to deliver on its promises.

Specifically, expansion plans are already underway in six countries. LG Energy will invest KRW 5.6 trillion to establish a joint venture plant with GM in the U.S., KRW 1.4 trillion to build its own plant in Poland, KRW 1.2 trillion in China and KRW 64.5 billion in South Korea. In addition, it will establish joint plants with Stellantis in Canada and Hyundai Motor in Indonesia. Clearly, part of the proceeds from LG Energy's IPO will be used for these large-scale investments.

Meanwhile, LG Energy is working on a cutting-edge solid-state battery, as well as developing a lightweight lithium-sulfur battery that can be used in drones and flying taxis.

The competition for the market share of electric vehicle batteries is very fierce. According to Tokyo-based Techno Systems Research, CATL ranked first in the world with a share of 25.3% in 2020. LG Energy is a close second, with a market share of 22.7%.

Kwon said: "In terms of material technology and intellectual property, we are ahead of the NINGDE era". As automakers in Europe and the United States switch to electric vehicles, their orders will continue to grow. Kwon believes that the catheter era's high dependence on Chinese customers is a weakness. "We are at the forefront of reaching global customers in Europe and the United States."

Despite having international customers such as Tesla, BMW, Toyota motor and Honda Motor, CATL still derives 80% of its revenue from China. This year, CATL will open a factory in Europe to diversify geographically. But because of the differences between China and the United States, "it is difficult for the CATL era to establish deep relationships with Western companies, such as establishing joint ventures." A securities analyst said.

Of course, LG Energy faces its own challenges, including large-scale recalls in 2020 and 2021 that have led to fiscal deficits. Since battery systems account for about 30 percent of the cost of electric vehicles, the cost of replacing them can snowball.

Quality control will also be a constant focus on the expansion of transnational production. LG Energy has joined forces with Siemens to transform its factories into smart factories. Battery quality will be checked through the use of artificial intelligence and big data-driven machine learning production techniques.

Currently, parent company LG Chem holds an 82% stake in LG Energy. But the former's growth strategy will be tested after LG Energy goes public. LG Chem's market capitalization is now 46 trillion won, well below the value of its stake in LG Energy. This makes it crucial for the company to chart a path beyond batteries.

Undoubtedly, the debut of LG Energy will usher in a more fierce market competition in the electric vehicle battery industry.

CATL expects to have a capacity of more than 670 GWh by 2025, exceeding the 400 GWh of LG Energy's plan. In addition, CATL said in a document that it needs to increase its capacity by 430 GWh and estimates that each additional GWh capacity will cost at least 300 million yuan (US$47 million). (Proofreading/Jenny)