The foundry business that produces batteries developed and designed by customers is rising as a hot issue in the battery industry with automakers set to launch a large number of new electric vehicle (EV) models this year.
The foundry business generally belongs to the semiconductor industry. In the 1990s, the global semiconductor market began to be divided into the fabless industry, specialized in chip design and development, and the foundry business, specialized in chip production, according to sources in the battery industry on Jan. 1.
The battery foundry business is somewhat different from the semiconductor foundry business, which has evolved into a fabless business. The battery foundry business requires significant research and investment costs not only for development and design but for volume production. As batteries account for around 40 percent of the cost of electric vehicles, automakers cannot disregard the power of battery makers and the importance of batteries. Latecomers in the battery industry need to secure an opportunity to turn the tide with leading players. So, the automakers and the latecomers in the battery industry see eye to eye on setting up a new business model –- the battery foundry business.
Sweden’s Northvolt is a good example. Founded in 2016, Volkswagen Group became the largest shareholder of Northvolt in 2019 when the German automotive group acquired a 20 percent stake in the battery maker. Northvolt initially focused on the development and production of prismatic batteries, but failed to meet the needs of its largest customer, also Volkswagen Group. As a consequence, a new collaboration model was initiated with Volkswagen developing the batteries and Northvolt mass-producing them.
Since then, Northvolt has successfully developed cylindrical and pouch products, enabling it to produce all three form factors. The company is preparing for its foundry business with an initial public offering and the construction of new factories in Europe and North America. In addition, small and medium-sized battery makers in China facing bankruptcy due to the shrinking electric vehicle market in China are also reportedly investing in the battery foundry business, expanding anticipation that the related market will grow rapidly.
Korea is no exception. As Hyundai Motor Group speeds up battery development with a focus on electrification, Korean companies that supply batteries are expected to enter the battery foundry business one after another. SK on, classified as the third ranker among the three major Korean battery makers -- LG Energy Solutions, Samsung SDI and SK on -- is said to be running ahead of the other two in the battery foundry business as battery sales to Hyundai Motor make up the largest portion of SK on’s total sales. Global carmakers, including Japan’s Toyota, are also keen on developing their own batteries, so experts believe that the three Korean battery maker companies will have a dual business structure that includes not only battery development and production but battery foundries.
“Many automakers tried to internalize batteries, but most of them have failed due to lack of experience in building facilities and mass-producing batteries,” said an industry insider. “For high-end premium batteries, they will continue to rely on battery companies, so the position of the three Korean battery makers will remain unchanged, but as the overall battery market expands, battery foundry orders for mid- to low-priced and budget batteries are expected to increase, heating up competition in the market.”