Critical Tesla EV Supplier LG Chem To Spin Off Battery Business

LG Chem, will spin off its EV battery supply operation. It has a quarter of the EV market. — An emergency meeting of the board of South Korea’s LG Chem last night decided to spin off its EV … [+] battery-making operation into a wholly owned subsidiary. LG Chem supplies EV batteries to Tesla, GM, Hyundai, Kia, Volkswagen, Renault, Volvo and Mercedes-Benz, amongst others. Photographer: Woohae Cho/Bloomberg

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One of Tesla’s key suppliers for its Chinese car plant and one of the major players in electric car (EV) innovation, South Korea’s LG Chem, is set to spin off its battery business.

The Yonhap News Agency in Korea reported today that LG Chem, which also supplies the Volkswagen Group and General Motors, will create LG Energy Solutions by December 1 this year.

A statement from LG Chem said LG Energy Solutions would be valued at 13 trillion won (US$11 billion) and it was expected to climb in valuation to more than 30 trillion ($25 billion) in the next four years.

It has not ruled out a public offering for the firm.

It said the battery arm was being spun off to fund its capital investment appetite, which will demand at least three trillion won ($2.5 billion) a year until 2024.

While Panasonic supplies Fremont Teslas, LG Chem's batteries are in the Chinese versions. — LG Chem supplies cylindrical batteries for Tesla’s Chinese factory, near Shanghai. Photo: Costfoto / … [+] Barcroft Media via Getty Images

Barcroft Media via Getty Images

In an arm wrestle for automotive battery supremacy with China’s Contemporary Amperex Technology (CATL), Samsung SDI and SK Innovation, LG Chem insisted it needed to spin off the battery business to raise money for an expected regulation-driven boom in electric cars.

It is under particular threat from the China-based CATL, even though it has supplied 25.1 percent of the world EV battery market so far this year according to SNE Research analysis.

The Chinese-built Tesla Model 3 and Renault’s surging Zoe EV have driven LG Chem’s EV battery surge, though LG Chem also supplies batteries to Ford, Daimler, Hyundai, Kia, Audi, Volvo and Volkswagen.

The Lucid Air's claimed 517 miles of EV range is courtesy of LG Chem batteries. — LG Chem’s cylindrical batteries also power the new Lucid Air, with a claimed 517 miles of EV range. … [+] Photo: MediaNews Group/Bay Area News via Getty Images

MediaNews Group via Getty Images

It has also developed batteries for the Lucid Air, with a claimed 517 miles of range.

Its battery business is profitable, with demand from European automakers rising along with their EV sales, and its cylindrical EV batteries are almost exclusively made for use in Chinese-built Teslas.

The petrochemical giant held a board meeting yesterday to confirm the move to spin the EV sector off as a separate, wholly owned company.

“We believe it is the right time to spin off as the electric vehicle battery business began to yield a sizable profit amid the rapid growth of the battery industry,” the company said in a statement.

LG Energy Solutions will be born from an automotive battery unit with US$132 million (155.5 billion Won) in second-quarter operating profit on sales of 2.8 trillion Won, with a $128 billion backorder for EV batteries.