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Cleaner vehicles are a central aspect of global net-zero ambitions and the rising sales of electric vehicles are leading to growth in battery and minerals supply chains. While China is the leader in EV battery manufacturing, with nearly 70% of the global capacity, South Korean battery makers are trying to catch up with its neighbour with higher investments and government support.
As per the International Energy Agency (IEA), South Korea has a considerable share in the EV battery supply chain, with about 15% of global cathode material production. Several companies in Korea are also responsible for the production of other battery components such as separators.
The world’s biggest EV battery manufacturer is China’s CATL, followed by LG Energy Solution, BYD, Panasonic, SK on, Samsung SDI and others, as per data from SNE Research. South Korean battery makers make up over 25% of the global supply chain, and Seoul recently announced a 7 tn won (~$5.3 bn) support package for the EV battery sector.
Another catalyst for future growth in the industry is the US bill that encourages investment within the US and sourcing battery materials outside of China. “To effectively cope with situations changing rapidly after the Inflation Reduction Act, both the government and businessmen should cooperate to find solutions together,” South Korea’s Trade Minister Lee Chang-yang said in a statement published by the trade ministry.
Apart from the benefits of a US subsidy, South Korea’s battery sector already supplies to big automakers around the world, such as Ford, Tesla, Audi, Volkswagen and General Motors, among others.
But why are EV battery supply chains so important from an investment perspective? Batteries are nearly 40% of the total cost of an EV and may also need to be replaced during the lifetime of a car.
South Korean battery makers
As per the report by SNE Research, LG Energy, SK On and Samsung SDI saw a dip in their share in the global battery market in 2022 compared to 2021, whereas Chinese companies saw growth. However, the Korean trio are likely to scale up their production thanks to the billions of dollars of potential subsidies from the US government.
While the overseas market is one aspect, South Korea is also betting on the region called Pohang, where companies are building EV battery plants to reduce their reliance on China. LG Energy, Samsung SDI and SK On have pledged to invest 40 tn won (~$31 bn) in Pohang along with their local suppliers.
Here is a snapshot of the Korean battery makers which are leading the charge in the global market.
LG Energy Solution Ltd
Established in December 2020, LG Energy Solution has quickly risen to prominence with its battery solutions. The company manufactures automotive batteries, mobility and IT batteries, and energy storage batteries.
The company follows LG’s ‘Jeong-Do Management’ which is an ethical code of conduct for fair competition. The company has manufacturing hubs in Asia, Europe and North America.
LG Energy has announced an investment of $5.5 bn to construct a battery manufacturing hub in Arizona, US. The facility will manufacture EV batteries among other things. Previously, the company had announced an investment of $1.3 bn at the same location. Meanwhile, it also formed a joint venture with Japan’s Honda for an EV battery manufacturing facility in Ohio, US.
Listed on the Korea Exchange, the stock of LG Energy Solution has risen over 35% in the past year, and the company currently has a market capitalization of $102 bn. The stock has P/E ratio of 175.42 while the price-to-book ratio stood at 7.25.
“We thought the company’s guidance in 2023 (sales growth of 25-30% YoY) was a bit too conservative. The company may be extra cautious on the business outlook given the weak macro conditions,” Insight Provider Douglas Kim who publishes on Smartkarma said after the company announced its Q4 results in January.
Samsung SDI
Samsung SDI is a battery manufacturer founded in 1970. The acronym SDI stands for Samsung Digital Interface. The company has manufacturing bases in the US, Europe, China, Malaysia and South Korea.
Last month, the company announced it is working with General Motors to build a $3.8 bn battery manufacturing plant in Michigan, US. Last year, Samsung SDI and Stellantis NV announced plans to build a $2.5 bn battery plant in Indiana.
Primarily listed in Seoul on the Korea Exchange, Samsung SDI’s stock has risen nearly 25 % in the past year. The company has a market capitalisation of $36.9 bn. The stock has a P/E ratio of 25.28, whereas the price-to-book ratio stood at 2.99.
SK On Co.
SK On is the only non-public firm on our Korean battery makers list but is part of SK Innovation which is a public company. The company was established in late 2021.
Back in December 2022, SK On and Hyundai Motor announced an EV battery pact for setting up a $1.9 bn manufacturing plant in the US. The company has manufacturing bases back home as well as in some other regions around the world.
Earlier this year, the company announced it is working on a new type of EV battery which will reduce the overall cost of production. The improved lithium-iron-phosphate EV battery will be available by 2025. The company is banking on its battery research over the past decade and has already racked up an order backlog of $176 bn (as of September 2022).
“SK On was able to grow rapidly and secure an order backlog because the market recognized [our] battery technological capabilities and quality,” SK On Co’s co-CEO Jee Dong-seob says.
