Shunning LG Energy Solution and SK Innovation

A concept view of dedicated EV platform of Volkswagen

Volkswagen announced on March 15 that it would use prismatic batteries instead of pouch batteries in its future electric vehicles. The company is currently using pouch batteries from LG Energy Solution and SK innovation as its main batteries. The announcement implies CATL and Northvolt will replace them.

At present, prismatic batteries are the mainstream in the market, in which pouch batteries are growing fast. According to market research firm SNE Research, the global use of pouch batteries increased to 40 GWh and their market share rose to 27.8 percent in 2020, when cylindrical batteries’ share fell from 27.1 percent to 23 percent and prismatic batteries’ share fell from 56.8 percent to 49.2 percent. Last year, the use of LG Energy Solution batteries jumped 171.5 percent to 33.5 GWh and that of SK innovation batteries soared 274.2 percent to 7.7 GWh.

The mainstream is prismatic because this type is the main item of CATL, the largest EV battery manufacturer in the world. The Chinese company’s global market share amounted to 22.8 percent last year, when those of Samsung SDI, LG Energy Solution and SK innovation were 7.8 percent, 23.9 percent and 4.5 percent, respectively. Samsung SDI supplies prismatic, LG Energy Solution supplies both pouch and cylindrical, and SK innovation supplies pouch batteries.

Volkswagen’s decision has to do with the fact that its growth has been led by its business in China. Volkswagen is the first global automaker that entered the Chinese market. Last year, it was the largest EV seller in China and Europe. However, Tesla is still outperforming Volkswagen in terms of global sales and Tesla is planning to produce 550,000 cars in Shanghai this year. The number even exceeds Tesla’s own 2020 global sales volume, 442,334, and Volkswagen needs to send a strong message to retain its market leadership in China. The use of more CATL batteries was the message this time.

The decision has to do with the recent litigation between LG Energy Solution and SK innovation, too. As a result of the legal battle, SK innovation is supposed to run its battery manufacturing facilities in Georgia only for a couple of years. This is perplexing for Volkswagen in that it is supposed to receive batteries from the facilities. Also, the announcement is bad news for LG Energy Solution, which has to increase its investment in cylindrical batteries for collaboration with Tesla, in that Volkswagen has been its second- or third-largest client.

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