LG Energy Solution in talks with Chinese firms to make low-cost EV batteries for Europe

Samsung SDI

24/07/2024 06:00

By Heekyong Yang
       SEOUL, July 24 (Reuters) - South Korea's LG Energy
Solution (LGES) is in talks with about three Chinese suppliers
to produce low-cost electric vehicle batteries for Europe, a
senior executive said, with competition set to intensify after
the EU slapped extra tariffs on China-built EVs.
    LGES'  373200.KS  potential partnerships come as the global
EV industry is grappling with a sharp slowdown in demand, and
underscore growing pressure non-Chinese battery firms face from
automakers to lower prices to levels matching cheaper Chinese
rivals.
    France's Renault  RENA.PA  said this month that it would
include lithium iron phosphate (LFP) battery technology in its
plans to mass produce EVs, choosing LGES and its Chinese rival
CATL  300750.SZ  as partners to build a supply chain in Europe.
    The announcement followed the European Commission's decision
in June to impose an extra tariff of up to 38% on EVs imported
from China after a months-long anti-subsidy probe that has
prompted a flurry of investment pledges by Chinese EV makers and
battery firms in Europe.  
    "We are having talks with Chinese firms who will develop LFP
cathode with us and produce them for Europe," Wonjoon Suh,
leader of LGES' advanced automotive battery division, told
Reuters, declining to name the companies.
    "We are considering various measures, including setting up
joint ventures and signing long-term supply deals," he said,
adding such a partnership should help LGES lower its LFP battery
manufacturing costs to levels matching its Chinese rivals in
three years.
    Cathode is the single most expensive element of an EV
battery and accounts for about a third of the overall cost of a
battery cell. 
    China dominates LFP cathode supplies globally and its
biggest producers are Hunan Yuneng New Energy Battery Material
 301358.SZ , Shenzhen Dynanonic  300769.SZ , Hubei Wanrun New
Energy Technology  688275.SS , according to battery market
tracker SNE Research.
    Most EV batteries today use one of two types of cathodes:
nickel-based or LFP. 
    Nickel-based cathodes, like those used in longer-range Tesla
 TSLA.O  models, are capable of storing more energy, but use
costly materials. LFP cathodes, popular with Chinese EV makers
like BYD  002594.SZ , typically do not hold as much energy, but
they are safer and tend to be less expensive because they use
materials that are more abundant. 
    South Korean battery firms have focused on producing
nickel-based batteries and are now expanding into LFP battery
production that Chinese rivals dominate, pressured by automakers
looking to expand their product lineups to more affordable
models.
    Suh said LGES is considering three locations - Morocco,
Finland and Indonesia - to produce LFP cathodes with Chinese
firms for the European market. 
    LGES has been discussing LFP battery supply deals with
automakers in the United States, Europe and Asia. But Europe has
stronger demand for affordable EV models, with the segment
accounting for about half of the region's EV sales, higher than
in the U.S., he said.   
    South Korean battery makers LGES, Samsung SDI  006400.KS ,
and SK On, had a combined 50.5% share of the EV battery market
in Europe in the first five months of this year, with LGES'
share standing at 31.2%, according to SNE Research. Chinese
battery rivals had a 47.1% market share in Europe, led by CATL
at 34.5%.
    LGES has existing battery joint ventures with General Motors
 GM.N , Hyundai Motor  005380.KS , Stellantis  STLAM.MI  and
Honda Motor  7267.T  at a time when EV sales growth is slowing.
    Suh said the installation of some equipment needed for
expansions could be delayed for up to two years in agreement
with the partners due to the demand slowdown.
    He forecast EV demand would recover in about 18 months in
Europe and two to three years in the United States, but would
depend in part on climate policies and other regulations. 

 (Reporting by Heekyong Yang; Editing by Ju-min Park and Jamie
Freed)
 ((Heekyong.Yang@thomsonreuters.com;))