L&F has decided to make a significant new investment of 2.55 trillion won (US$1.96 billion) in Daegu in response to surging global demand. This move comes as Chinese battery materials face constraints in the global market following the implementation of the Inflation Reduction Act (IRA) in the United States. In contrast, Korean materials continue to receive consistent supply requests from major countries such as the United States and Europe. Consequently, the company is pressing ahead with substantial investments to gain an advantage in long-term competition with Chinese counterparts despite recent economic challenges.
In a newly signed memorandum of understanding (MOU) announced on Nov. 27, L&F stands out for its dedication to establishing production facilities for next-generation anode materials and low-cost lithium iron phosphate (LFP) cathode materials for batteries on a land area of approximately 560,000 square meters within the Daegu National Industrial Complex. Notably, this marks a departure from the company’s previous production portfolio.
L&F is advancing its next-generation anode materials business through collaboration with Japan’s Mitsubishi Chemical Group. The recently developed anode material technology by Mitsubishi Chemical is notable for its capacity to mitigate expansion, which can impact the lifespan of batteries.
Anode materials, which are considered a crucial component in secondary batteries alongside cathode materials, are identified as urgently needing domestic production. With the Biden administration’s actions in excluding Chinese battery materials through the implementation of the IRA, there are anticipated opportunities to export anode materials to the North American market.
L&F, a supplier of cathode materials to Tesla, was founded in 2000 and initiated mass production of nickel cobalt manganese oxide (NCM) cathode materials in 2007. Subsequently, in 2019, the company achieved a noteworthy milestone by successfully developing the world’s first high-nickel cobalt manganese aluminum (NCMA) cathode material with a nickel content reaching 90 percent.
L&F, along with other domestic players in the battery materials industry such as EcoProBM, is actively pursuing large-scale investments. EcoPro, the parent company of EcoProBM, signed an MOU in July of this year with North Gyeongsang Province and Pohang City to build a new production facility and committed to investing 2 trillion won in the Pohang Blue Valley National Industrial Complex. This move follows its earlier investment of approximately 2.9 trillion won in Pohang from 2016, leading to the completion of the Pohang Campus in 2021. In the coming year, L&F’s annual cathode material production capacity is expected to increase significantly from 130,000 tons to 220,000 tons, while EcoProBM’s capacity is projected to rise from 190,000 tons to 280,000 tons.
Market analysts suggest that the battery materials industry continues to make significant investments as a strategic move to gain an edge in long-term competition with Chinese companies despite a downturn in electric vehicle demand impacting financial performance. In fact, EcoProBM and L&F recorded 45.9 billion won and 14.8 billion won each in operating profit for the third quarter of this year, respectively. These figures represent a substantial drop of 67.6 percent and 85.0 percent compared to the same period last year. However, it is apparent that the companies have opted not to defer investments, considering the ongoing efforts in major markets such as the United States and Europe to exclude Chinese materials.
According to the detailed guidelines of the U.S. IRA, the use of minerals produced by a Foreign Entity of Concern (FEOC) will be completely prohibited starting from 2025. Although specific guidelines are yet to be released, there is a high likelihood that Chinese companies may be included in the FEOC, considering the IRA’s objective of excluding China from the supply chain. This is one of the reasons for the increasing demand for South Korean materials in the North American electric vehicle market. Additionally, the European Union (EU) reached an agreement on the final version of its “Critical Raw Materials Act (CRMA)” to reduce dependence on China for key battery materials such as nickel and graphite on Nov. 13 (local time).
Meanwhile, the cumulative R&D investments of the three cathode material companies – EcoProBM, POSCO Future M, and L&F – for the third quarter of this year amounted to 88.1 billion won, marking the first decrease in five years for the same period. This reduction in R&D expenditures seems to be a response to the diminished demand for electric vehicles and the decline in metal prices, including lithium, affecting profitability this year. However, industry observers believe that this trend is unlikely to be prolonged. From 2019 to last year, the cumulative R&D investments for the third quarter exhibited consistent growth for these three companies, increasing from 28.8 billion won to 43.1 billion won, 51.4 billion won, and 92.2 billion won.
This year, POSCO Future M is the sole company among the three to have increased its R&D expenses. While EcoProBM and L&F reduced their R&D costs by 1.3 billion won and 3.7 billion won, respectively, compared to the previous year, POSCO Future M increased its R&D expenditure by 900 million won.
However, industry observers hold a consensus that the phase of investment adjustment is unlikely to be prolonged. An official from a major cathode material company stated, “The investment costs increased significantly last year compared to the previous year, so this year may seem lower, but in reality, there won’t be a significant difference compared to last year,” adding, “The investment direction will remain unchanged.”