Tesla will install LG Chem's battery in electric cars produced in its factory in Shanghai, China, industry sources said on Aug. 28.
Tesla is building Giga Factory 3 in Shanghai with about 50 billion yuan and is in the final stage of placing production facilities and equipment. LG Chem's batteries are expected to go into Model 3, an electric car scheduled to be produced at the Chinese factory starting later this year, and into Model Y, a compact crossover vehicle that will be released next year. "We cannot confirm it," LG Chem said with respect to the issue.
Tesla plans to produce about 500,000 electric vehicles a year at Giga Factory 3, which will have an R&D center. LG Chem is expected to see its market share soar in China due to the battery supply to Tesla.
Currently, electric vehicle batteries are divided into square, pouch and cylindrical types and Tesla uses the cylindrical type. Tesla has received batteries from Panasonic through an exclusive contract as the Japanese company is strong in cylindrical batteries. LG Chem has been mainly supplying pouch-type batteries, but it is also strong in cylindrical batteries.
LG Chem has recently been increasing investment to penetrate the Chinese market, so it will have no problem in supplying products to Tesla. In addition to the two battery plants in the Nanjing-Xinjiang Economic Development Zone which is close to Tesla’s Shanghai plant, LG Chem is building EV Battery Plant 2 in the Binjiang Economic Development Zone. The company also announced a 1.2 trillion won investment plan for two Xinjiang battery plants earlier this year.
According to market research firm SNE Research, CATL was the leader of the global electric vehicle battery market during the first five months of this year with a share of 25.4 percent. It was followed by Panasonic (20.3 percent), BYD (15.2 percent) and LG Chem (10.8 percent).
LG Chem's low market share has been blamed on its failure to generate enough sales in the Chinese market. Since 2016, China has not given subsidies to electric vehicles with Korean batteries to foster the Chinese EV battery industry. For this reason, Korean battery producers’ global market share dropped from 30 percent in 2014 to about 16 percent this year.
However, LG Chem will be able to expand its market share in China on Tesla’s coattail beginning at the end of 2020 when the subsidy policy will be abolished. In June, the company announced a plan to establish an EV battery joint venture with China's No. 1 local automaker, Geely Motors, by investing 103.4 billion won each. The plant will produce 10 GWh of batteries annually starting in 2022, according to the plan.