Korean Battery Producers Facing Tough Competition from European and Chinese Companies

European and Chinese battery makers have signed a series of battery supply contracts with global carmakers, posing a threat to the Korean battery industry. In addition, Tesla, the world's No. 1 electric vehicle (EV) company is considering producing batteries on its own. It has thus far used batteries from Panasonic and LG Chem. These developments are likely to change the ecosystem of the global EV battery industry.

Swedish battery maker Northvolt recently signed a contract with BMW to supply batteries worth 2 billion euros. Northvolt will start supplying batteries to BMW from 2024, becoming one of the top three battery suppliers for BMW. The two others are Samsung SDI and CATL. Behind Northvolt's rapid growth is Germany's Volkswagen, which is rolling up its sleeves to build a vertically integrated EV battery supply chain. In 2019, it announced a plan to build Europe's largest EV battery plant with Northvolt.

The European Union (EU) is also planning to foster European battery companies by joining hands with 34 partners to develop "BIG-MAP," a technology development project aimed at preempting the future battery market.

Furthermore, Germany's BASF, the world's largest chemical company, and Total, a French petrochemical company, are also seeking to enter the battery business.

China is also moving to overtake the Korean battery industry. China's No. 1 battery maker, CATL, is set to become a global brand this month by supplying lithium iron phosphate (LFP) batteries for Tesla's Model 3 produced at Shanghai Giga Factory. CATL has increased its world market share to 24.9 percent. Thus far, CATL has not been regarded as competitive in the global market, given that its market share outside the Chinese market was only around 3 percent. However, its supply of batteries to Tesla is changing this perception. CATL's LFP batteries use cell to pack (CTP) technology to increase energy density. Technologically, they are not up to nickel, cobalt and manganese (NCM) batteries. But they are cheaper than NCM batteries and are expected to become a cash cow for CATL in the future. CATL plans to upgrade its technological power through 21C Lab, which will start research on next-generation batteries beginning the end of 2021.

The rise of European and Chinese battery makers is bad news to Korean battery makers. The three Korean battery makers — LG Chem, Samsung SDI and SK Innovation — have yet to make profits as they have thus far been focused on taking orders rather than generating profits. It is not easy for them to swing into positive territory as they are still expanding their production capacities in preparation for a "battery chicken game" in the future.

CATL and Northvolt are supported by the Chinese government and Volkswagen, respectively. Northvolt is known to have upgraded its technology by hiring Korean workers. The company said on its website that about 30 Korean and Japanese engineers were working for it at the end of 2019. This raises concerns that the Korean battery industry may follow in the footsteps of the Korean LCD industry, which lost the industrial leadership to China. Volkswagen is also strengthening its Europe-China alliance by spending about 1.1 billion euros to acquire a stake in Guoxuan, China's third largest battery maker.

Although Korea's three battery makers are planning to get ahead of the competition through economies of scale and advanced technologies, they are feeling vulnerable to the threat posed by latecomers. In particular, the news that Tesla will cut off its business with Japan's Panasonic and start to produce its own batteries is shocking.

Meanwhile, LG Chem ranked first in the global battery market in the first five months of 2020 with a 24.2 percent share, according to SNE Research, a market research company. Samsung SDI placed fourth with 6.4 percent and SK Innovation seventh with 4.1 percent. Their combined market share came close to 35 percent.