Electric vehicle batteries power Korea ahead

[NEWS ANALYSIS] President Lee said he hopes that local firms will capture 40 percent of the global market

Apr 19,2011
As part of President Lee Myung-bak’s push for a green growth agenda to help combat climate change, the nation’s automobile industry is increasingly focusing on producing electric vehicles to replace ones with carbon-emitting engines that pollute the environment.

The shift is creating what is hoped to be one of Korea’s growth industries; the manufacture of lithium-ion batteries to power the electric vehicles by some of the country’s leading chemical companies.

The current leader in the local EV battery sector is LG Chem, which recently completed the construction of the world’s largest lithium-ion battery plant in Ochang, North Chungcheong.

The attendance of President Lee at the plant opening underscored the government’s recognition that EV batteries will play a key role in the green growth agenda because the future global auto industry will be dominated by electric vehicles.

While LG Chem has set a goal to gain 25 percent of the global EV battery market, President Lee spoke of a more ambitious target of local EV battery makers achieving a global market share of 40 percent.

Other Korean EV battery producers include SK Innovation and SB LiMotive, which is a joint venture between Samsung SDI and Bosch.

LG Chem has already drawn international attention for its work in EV batteries. When it opened a plant in Michigan last year, the ceremony was attended by U.S. President Barack Obama.

LG was the first in the country to conduct rechargeable battery research starting in 1992 when Koo Bon-moo, the current group chairman, became interested in the product as a future source of growth.

Koo assigned research to LG Chem because he believed the chemicals division had strong experience in dealing with such materials as cathodes, anodes, separators and electrolytes.

But progress was slow compared to the advances that Japanese companies were making in the field at the time.

LG Chem’s battery business was almost shut down twice, in 2001 and 2005, because of complaints by other LG affiliate chief executives that it was losing money. But Koo continued to give his support to the program in spite of these concerns.

The situation turned around in January 2009 when General Motors announced at the Detroit Motor Show that it had selected LG Chem as the exclusive battery supplier for its new EV, the Cheverolt Volt.

President Lee Myung-bak observes the operation of a lithium-ion battery to power an electric vehicle along with LG Group Chairman Koo Bon-moo at the opening last month of LG Chem’s battery plant in Ochang, North Chungcheong. Provided by the company
Since then things have improved for the company as it gained EV battery orders from a total of 10 automakers, including Renault, Ford, Volvo and Hyundai Motor Group.

LG Chem, which now has an annual production capacity to supply EV batteries for 100,000 vehicles, wants to increase its capacity to supply batteries for 350,000 EVs or 5.5 million hybrid vehicles by 2013.

Meanwhile, Samsung SDI, the world’s second largest maker of rechargeable batteries, formed a 50/50 joint venture with Bosch, the world’s leading automobile components supplier, in June 2008.

The new company, SB LiMotive, was first selected by BMW to supply EV batteries for its Mega City Vehicles between 2013 and 2020. It has since signed deals with Fiat and Delphi. With the completion of its production facility last November, SB LiMotive said it will be able to supply EV batteries for 180,000 EV vehicles by 2015.

Analysts said that they expect SB LiMotive could become a serious competitor to LG Chem. The Samsung unit announced last month that it will participate in future EV battery development with the United States Advanced Battery Consortium (Usabc) through its subsidiary Cobasys.

SK Innovation started EV battery research in 2005, when it developed the lithium-ion battery separator. After first getting orders from Mitsubishi Fuso in October 2009, it has since supplied EV batteries for Hyundai Motor’s BlueOn and recently signed a deal with Mercedes-AMG to supply batteries for the E-Cell supercar.

SK is also involved in the consortium with Usabc to develop EV batteries. The company’s production facility, which will be completed next year, has a target of supplying EV batteries for 500,000 hybrid vehicles.

Although these Korean companies have established leadership in the industry, questions remain about how bright the future for EV batteries is.

One area of debate is whether EV batteries will be the future power source for vehicles. There is continuing research on alternative fuel sources such as hydrogen fuel cells, although the cost for this system still remains very high compared to EV batteries, which has limited its adoption.

“Most of the global automobile industry appears to favor electric vehicles since they offer energy efficiency and are environmentally friendly,” said Hwang Kyu-won, an analyst at Tong Yang Securities. “Although this period can be described as a transitional one, with extensive research still being made on hydrogen fuel cells, I think Korean battery makers will become global leaders because of their focus on lithium-ion batteries.”

Hwang added that the leading role of Korean companies in EV batteries has given domestic automakers a technological lead in electric vehicles when previously they have followed moves by Toyota and General Motors.

Korea is likely to face increased competition in the rechargeable battery industry from Japan and China.

Japan has traditionally been the global leader in rechargeable batteries. Although hybrid vehicles have been powered by nickel-metal hydride batteries, it is seen as only a matter of time before the Japanese catch up in lithium-ion technology or develop new types of batteries.

China could also pose a threat if they are able to produce low-cost batteries, although they so far lack the technology.

“Since the Japanese companies have not fully recovered their investments from developing nickel-based batteries used in vehicles such as the Prius, it may take them a while before they switch to lithium-ion batteries. But there is a strong possibility that Japan will become a tough competitor in the future,” said Hwang.

“As for the Chinese, automobile consumers there are more conservative. Producing batteries is not like making home appliances like televisions so price is not an issue now. I don’t see Chinese companies as posing a threat yet since they have not produced batteries that can satisfy safety, performance and durability requirements, with safety being the most important.”

Peter Bahnsuk Kim, LG Chem vice chairman and CEO, emphasized that developing a safe and well-performing EV battery cannot be achieved overnight.

Instead this is the result of years of research. Although small companies may have created a decent product in lab-scale pilot productions, it is a whole new story when it comes to mass production.

Kim added that market entry barriers are high because of the large investments needed to conduct research and build production facilities.

That point has been underscored by the recent troubles confronting CT&T, a local EV company, which is on the verge of bankruptcy and has seen its shares fall from more than 2,000 won per share a year ago to a less than 200 won per share now.

“EV batteries need at least two to four years before they are ready for mass production and we already have that experience,” said Kim.

Kim said cost will be the crucial factor in pushing the global automobile industry to adopt electric vehicles since prices still remain high and governments often need to subsidize consumer purchases through various measures.

Even though EV batteries are falling in price, Kim said that it is now necessary for automakers to reduce costs further if LG Chem’s forecast of a 16 trillion won ($14.7 billion) global market for EV batteries is to be achieved by 2015.

What distinguishes the development of the Korean EV battery industry was that it grew without close partnerships with automakers, in contrast to Japan.

Analysts said this gave Korean battery makers more freedom to conduct research and development. They are now able to offer EV batteries to many automakers instead of being tied to just one.

Although there is strong interest in developing EV batteries in the United States and Europe, companies there do not have the experience of Korean producers. In addition, the focus in these countries has been on developing new advanced vehicles rather than components.

As a result, U.S. and European automakers may decide to rush into the production of electric vehicles while relying on Korean EV battery makers for supplies.

“LG Chem has made significant advances in terms of EV batteries and although it is not likely to make much profit this year from the business due to capital expenditures for its production facilities, things look bright for the company because it has gained a competitive edge in terms of price and experience against Japanese rivals,” said Anthony Kim, an analyst of Woori Investment & Securities.

“SK Innovation will also benefit from this trend, while SB LiMotive looks set to become a major competitor as well based on its success so far,” he added.

However, some experts warn that Korean EV battery makers will need to keep in mind future uncertainties in the sector, including the possibility a cheaper and efficient alternative emerging to power eco-friendly vehicles.

They also need to establish a reliable track record for supplying EV batteries to global automakers over the next few years, with LG Chem being the most experienced in this regard.

By Jung Seung-hyun [seungjung@joongang.co.k

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