A Bold Move to Penetrate Chinese Battery Market
LG Chem will set up an electric vehicle battery joint venture with Geely Auto, the largest automaker in China. This marks the first time that LG Chem sets up a joint venture with a carmaker to manufacture batteries for electric vehicles. Industry analysts view it as a bold move to enter the Chinese market.
LG Chem announced on June 13 that it would invest 103.4 billion won to establish a 50-50 electric vehicle battery joint venture in China. The joint venture is expected to produce 10 GWh electric car batteries a year. The batteries will be supplied to electric vehicles to be launched in China, including those to be produced by Geely, starting in 2022. The factory site and the name of the corporation will be announced later.
Geely Auto ranked first in China last year by selling 1.5 million vehicles, including those powered by internal combustion engines. Starting in 2020, 90 percent of its sales will come from electric vehicles, plug-in hybrid electric vehicles (PHEVs) and hybrid electric vehicles. Geely Auto is the parent company of Volvo in Sweden and is the largest shareholder of Daimler AG in Germany with a 9.69 percent stake. A partnership with Geely Auto is expected to help LG Chem increase its share not only in the Chinese battery market but in the global market.
LG Chem expects to see its market share grow in the Chinese market after 2021 when the subsidy program for Chinese-made electric vehicle batteries will be abolished. Korean battery companies have not received such subsidies since the Chinese government began implementing a discriminatory subsidy policy in 2016 in an effort to support Chinese battery manufacturers.
The Chinese market currently accounts for nearly half of the global electric car market. Electric car sales in China are forecast to grow rapidly from 1.5 million units in 2020 to 5.8 million units in 2025. CATL and BYD have become the world’s No. 1 and No. 3 battery manufacturers based on the huge domestic market.
When the Chinese market is excluded, the two Chinese companies’ market shares are negligible, while that of LG Chem stands at 25.3 percent, the second largest. Accordingly, LG Chem's global market share is expected to jump significantly after 2021.
LG Chem has been somewhat reluctant to establish a joint venture, but it had no choice to penetrate the Chinese market. The Chinese government recently took steps to ease restrictions on the foreign ownership of Chinese stocks, but without joining hands with local firms, it is virtually impossible to do business in China. SK Innovation established automobile battery manufacturing company Beijing BESK Technology jointly with Beijing Automobile and Beijing Electronics Holdings in 2013 and increased its stake from 40 percent to 49 percent in the third quarter of last year.
LG Chem is planning to actively consider setting up joint ventures in the United States and Europe when making inroads into the two regions in the future.