- Three Korea battery companies are to actively invest in R&D and expansition
- Achieved good 1Q financial results and expect to have more benefits from IRA
- Making efforts to diversify the mineral sources to reduce the dependence on China //
There is an industry that has been able to survive in current rapidly changing business environment. It's K-battery. In the aftermath of the US-China supply chain war, uncertainty grew, but in the end, the crisis became an opportunity. The Inflation Reduction Act (IRA), which was implemented by the U.S. to exclude China from the battery material supply chain, has become a springboard for growth for K-Battery, which has built up its technology and stable production capacity over the years. The market's acceptance of electrification has been much faster than the automotive industry expected.
LG Energy Solutions has been receiving the most requests for cooperation. It has established JVs with General Motors (GM), Hyundai, Stellantis, and Honda, and counts eight of the top 10 automakers in global sales, including Volkswagen, Renault-Nissan, Mitsubishi, Ford, and BMW, among its customers. In September last year, LG Energy Solutions had an order backlog of KRW 370 trillion, a steep growth of KRW 100 trillion compared to the previous year (KRW 260 trillion). With the spread of electric vehicles in full swing, most of the world's automakers have reached out to LG Energy Solutions.
The company's recent focus has been on North America. The industry predicts that the North American EV market will grow at an average annual rate of 33% by 2030, significantly outpacing Europe (26%) and China (17%) during the same period. In addition, the green energy business is starting to gain momentum after the recent introduction of the IRA. The electric vehicle and battery market is expected to grow even more rapidly. Tax credits for companies with production bases in the U.S. are a bonus.
In North America, LG Energy Solutions operates a sole plant in Michigan and a joint venture with GM. There are also 2nd and 3rd plants with GM and joint ventures with Stellantis and Honda currently under construction. With the completion of the cylindrical, energy storage (ESS), and LFP battery plants, which the company recently decided to invest KRW 7.2 trillion in, LG Energy Solutions will have a production capacity of up to 260 gigawatt hours (GWh) in the United States. It will be the only battery company in North America with this much capacity.
In the first quarter, LG Energy Solutions reported revenue of KRW 8.74 trillion and operating profit of KRW 633.2 billion. Compared to the same period last year, revenue increased 101.4% and operating profit increased 144.6%. The effects of IRA were realized from the first quarter of this year. LG Energy Solutions realized KRW 100.3 billion in Advanced Manufacturing Production Credit (AMPC) benefits. Starting this year, cells and modules manufactured and sold in the U.S. are eligible for a certain amount of subsidy, which is $35 per kilowatt-hour (kWh) for cells and $10 per kWh for modules.
LG Energy Solutions expects second-quarter sales to be in line with the first quarter. The company expects the overall demand for EVs to remain robust, especially in North America. For the full year, the company expects sales to grow more than 30 percent year-on-year. LG Energy Solutions said, "Annual sales are likely to grow by more than 30 percent year-on-year based on the current level, taking into account the increase and decrease in sales due to metal integration."
Samsung SDI is emphasizing 'qualitative differentiation'. Among the three battery makers, it is also the one that has been talking about technology and R&D investment the most recently. Since taking over, Choi Yun-ho, CEO of Samsung SDI, has emphasized 'super-gap technological competitiveness' and 'top quality' as his three management policies, and 'qualitative growth of profitability advantage' based on them. Although quantitative expansion is important, it is read as a strategy to compete through quality differentiation first.
Last year, after establishing R&D centers in the U.S. and Europe, the company also opened an R&D center in Shanghai, China, last month to strengthen its capabilities. It is especially significant that the company has secured research bases in North America, Europe, and China, the world's core markets for electric vehicles and batteries. Among batteries, there are specialized technologies in each region, such as China, which is particularly strong in materials, and Samsung SDI intends to absorb them and bring them to K-battery's competitiveness.
Samsung SDI's premium strategy is also evident in its products. Samsung SDI is mainly selling 'P5', which maximizes energy density by increasing the nickel content of the anode material by more than 88%. The next-generation P6, which is being developed for mass production next year, has increased the nickel content to a whopping 91%. This increases the energy density by more than 10% compared to the existing P5. Improved cathode materials and manufacturing methods have also been used to improve fast charging performance. Ultimately, Samsung SDI hopes to compete in the field of solid-state batteries, the next generation of 'dream batteries'.
Unlike the two companies, Samsung SDI does not have a U.S. plant, so it is difficult to expect AMPC benefits for the time being, but the benefits are expected to become visible around 2025. Like LG Energy Solutions and SK-on, it is expected to be in the hundreds of billions of won per year. Samsung SDI has partnered with Stellantis and GM to build a plant in the US. The joint venture with Stellantis is expected to start operating in the first quarter of 2025 and the plant with GM in 2026.
Samsung SDI posted record quarterly sales even without the IRA effect. Samsung SDI reported consolidated revenue of KRW 5.358 trillion and operating profit of KRW 375.4 billion in the first quarter of this year. Year-on-year, sales increased 32.2% and operating profit increased 16.5%. This is due to the company's focus on premium products such as the P5 battery. Samsung SDI is also expected to increase its operating profit further than in the first quarter, as it is expected to continue the favorable trend of P5 batteries.
SK-on, which has focused on pouch-type batteries, has vowed to diversify its portfolio this year and recently unveiled a model of its prismatic battery for the first time. Batteries for electric vehicles are largely divided into prismatic, pouch, and cylindrical cells, with prismatic batteries accounting for nearly 70% of the market. SK-on emphasized that its recently developed prismatic battery boasts fast charging speeds. "The addition of the prismatic type cell to the existing pouch type is expected to further diversify our customer base," the company said.
One-time expenses widened the deficit in Q1, but the company reported record quarterly revenue. Given the positive environment for battery growth and profitability in North America, SK expects to see tangible results in Q2. SK-on will start reflecting AMPC in its results from the second quarter of this year. The scale has been yet finalized, but it will be based on the expected North American sales of 10 to 15 GWh this year. Initially, SK-on estimated the size of AMPC to be around KRW 71 billion this year and KRW 1 trillion next year.
Challenges for the Korean battery company include increasing investment and production costs in the U.S. due to global inflation, low-cost pressure from China, and de-commoditization of key materials.
In particular, as regulations on the procurement of battery components and minerals are expected to be strengthened in the future, Korean battery companies need to focus on internalization and supply chain diversification to reduce their dependence on China.
The U.S. Treasury Department has implemented the detailed guidance rule on EV battery, which defines cathode and anode as battery components. For now, it broadly recognizes minerals and has not tightened the guidelines, but watch out for the "foreign entities of concern" (FEOC) rule that will take effect in 2025. While the details have not yet been spelled out, it is likely that most Chinese companies will be included, as the purpose of the IRA is to exclude Chinese companies. If Chinese companies are included, they will be banned from sourcing critical minerals from China after 2025.
In the case of key minerals, heavy reliance on China is a major setback for battery companies. Lithium and nickel, two key materials for batteries, are close to 90% sourced from China. This dependence is not gradually decreasing. In the first quarter of this year, imports of lithium hydroxide for battery cathode materials surged 490.3% year-on-year to $2.16 billion.
Nevertheless, battery companies remain confident in their ability to overcome what they see as a surmountable challenge. They have long been alert to the need to reduce their dependence on China. "We have already started to vertically integrate our supply chain, so reducing our dependence on China will not be an impossible challenge," said an industry insider. The approach is mainly to localize the value chain of battery components and materials. It is promoting supply chain stabilization through local equity investment and long-term supply contracts.
LG Energy Solutions last month signed an agreement with Chinese lithium compound manufacturer Yahua to produce lithium hydroxide in Morocco, Africa. Morocco is a country that has a free trade agreement (FTA) with the U.S., allowing it to respond flexibly to IRA regulations. Australia's Liontown has signed a five-year contract to secure 700,000 tons of lithium concentrate for lithium hydroxide. In addition, it signed a contract with Chilean lithium company SQM, the world's No. 1 lithium producer, to supply 55,000 tons of lithium hydroxide and carbonate for nine years.
SK-on is investing 1.21 trillion won to build a precursor plant in Saemangeum in Korea. Precursors, a key material for making anode materials, are also one of the materials that are highly dependent on China. The company is also partnering with U.S. mineral development companies to jointly develop battery cathode materials with Westwater Resources.
Samsung SDI signed a 10-year supply contract worth 40 trillion won with POSCO FutureM. Under the deal, POSCO FutureM will build a 30,000t/year NCA (nickel-cobalt-aluminum) plant in Pohang, Gyeongsangbuk-do, Korea and supply the materials to Samsung SDI. The scale is enough to supply about 300,000 electric vehicles with a battery capacity of 60kWh.
"We are proceeding smoothly and according to plan to reduce our dependence on China," said an industry insider. "As the share of China is large, we are working hard to diversify our supply chain by developing mines and signing MOUs with various companies."
"At the moment, there are a lot of materials in China, and there is a concern that the implementation of the IRA may cause prices to rise if many battery companies flock to companies in FTA countries such as Australia, Canada, and Chile, but in any case, it is important to secure materials diversely and proactively." "I think it is natural to include China in the FEOC, and it is also correct that localization should be done urgently. Now that the sourcing countries have been roughly determined to be those that have signed FTAs with North America, we need to continue to diversify our supply chain, which we have been doing in the past."
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- This blog is made to share energy news in Korea, especially for renewable energy such as solar PV, wind power, electric vehicle, EV charger, ESS and hydrogen, etc
- This article is translated into English by DeepL, and partly edited and summarized by Kimoo Heo in Korea, https://www.linkedin.com/in/kimoo-heo-49395557/
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