Korea’s next growth engine

LG Chem Ltd. opened a $303 million factory to make battery cells for electric and hybrid vehicles Thursday, Eastern time, in Holland, Michigan. The event has meaningful repercussions for the company as well as Michigan whose economy has been devastated by the slump in the automotive industry. The plant, run by LG Chem’s U.S. subsidiary Compact Power, will churn out lithium-ion battery cells to power 60,000 electric vehicles a year, enabling LG to mass-produce advanced vehicle battery packs. Together with another plant under construction in Ochang, North Chungcheong, LG Chem will soon be equipped with the capacity to produce enough batteries to run 260,000 vehicles a year. There are only fi ve to six other factories in the world that mass-produce next-generation secondary battery cells to support electric cars. Two of them are from Korea — LG Chem and SB Remotive, a subsidiary of Samsung SDI. LG leads the pack, with competition from Japan’s Panasonic and China’s BYD.

Many have said that the battery cells are the next memory chips. Memory chips have been a boon to the Korean economy, but secondary batteries have enormous growth potential. Approximately 80,000 units of electric and hybrid vehicles have been produced this year, with that number likely to balloon to 780,000 units by 2015 and 2.66 million units by 2020. And if the international community starts acting tougher on environmental issues, demand could grow. If LG and Samsung become market leaders, the benefits to our economy could be as great as those from the memory chip industry.

In a rare move, U.S. President Barack Obama attended the groundbreaking ceremony and delivered a speech. It is almost unheard of for a president to make such a visit, especially to a factory owned by a foreign company. Before the trip, the U.S. Department of Energy released a report underscoring the importance of advanced batteries and vehicles in job creation and efforts to transform the local transportation industry.

Half of the investment in the Michigan factory, or $151.4 million, comes from the U.S. government, which also offered a $100 million tax credit and a $25.2 million job creation credit.

LG has already signed an exclusive contract to supply battery cells to support electric models by GM and Ford. This will give LG an edge over its competition in the battery business. But LG will have to move quickly to obtain key parts on the local market. Meanwhile, the government should establish the infrastructure to boost demand for electric cars at home by eliminating various road regulations against electric cars. The government and industry must work together to transform the next-generation battery industry into the next semiconductor gem.