While South Korea’s two battery makers continue to war over battery technology patents, a key, common client has decided to migrate to a new type of electric vehicle battery, in an apparent flight to a more stable supply market.
Volkswagen, the world’s No. 1 automaker, announced Monday plans to power up to 80 percent of its electric vehicles with prismatic batteries from 2023, signaling a farewell from the pouch-type ones it currently sources from LG Energy Solution and SK Innovation.
Prismatic batteries are mainly produced by Chinese and European suppliers.
LG and SK, locked in a bitter dispute, are leading producers of pouch batteries, and VW is an important customer for both of them.
Park Chan-gil, an analyst at Seoul-based SNE Research, said prolonged market uncertainties stemming from the cross-town rivals’ legal wrangling could have been a factor in VW’s decision to divert from pouch batteries.
“VW can’t risk a scenario in which LGES takes further legal actions against SKI in other regions such as Europe,” Park Chan-gil said.
The European carmaker’s US operation has already become entangled in the dispute, as it sought to purchase SKI batteries to be manufactured in the firm’s factory in the US state of Georgia.
SKI, currently constructing two electric vehicle battery factories in Georgia, is set to supply batteries produced there to VW’s assembly line in Tennessee, starting in 2022.
The future of the Georgia plants, however, hangs in the balance, as the firm lost a lawsuit against LGES last month with the US International Trade Commission. Convicted of stealing trade secrets from LG Chem, the parent firm of LG Energy Solution, SKI was slapped with a 10-year business ban in the states. Unless SKI settles with LGES, the plant will have to shut down in 2023. The USITC has granted a two-year grace period for VW to find an alternative supplier.
The LG-SK dispute could have acted as a catalyst for VW to seek battery independence, an industry source said.
“If SKI’s Georgia plant shuts down, there is only LGES left where VW can supply pouch batteries from. Automakers like VW can’t afford to let their supply chains depend on a single vendor, let alone for batteries,” the source said.
Among the top 10 global electric vehicle battery makers, only three make pouch batteries -- LGES, SKI and China’s AESC. LGES is a dominant player, ranking second in global electric vehicle battery sales last year, deploying 33.5 gigawatt-hours of products and commanding 23.5 percent of the market. SKI and AESC ranked sixth and seventh, with 7.7 gigawatt-hours and 3.8 gigawatt-hours, respectively.
For VW, moving on to prismatic batteries can offer a secure supply chain. According to SNE Research, prismatic batteries are the mainstream of the market, controlling 49.2 percent of the global electric vehicle battery market last year. Compared to the pouch type, it has more suppliers to choose from: Sweden’s Northvolt, China’s CATL and BYD, Korea’s Samsung SDI and Japan’s Panasonic.
For LGES, losing VW is big, but not as big as it would be for SKI, which only produces pouch-type batteries, local analysts said.
The German carmaker accounts for 10-20 percent of LGES’ electric vehicle battery revenue, according to Mirae Asset Daewoo analyst Park Yeon-ju.
LGES produces both cylindrical and pouch-type batteries. It has a robust backlog of orders -- worth 150 trillion won ($132.6 billion) -- and strong partnerships with major electric vehicle players such as Tesla and General Motors.
“Though LGES’s performance won’t be affected for the next several years, there is a concern that LG’s market share in Europe could shrink,” Hyundai Motor Securities analyst Kang Dong-jin said.
He said it is important for LG to secure the US market to offset the setback in Europe, while it’s a positive factor that LG is expanding its presence in China through Tesla. LGES supplies cylindrical batteries for Tesla Model 3 sedans manufactured in China.
For SKI, the news from VW means a deepening woe.
“SKI’s battery business faces growing uncertainties as the global pouch battery market gets smaller, and as uncertainties from the battery dispute remain,” analyst Kang said.
Prismatic batteries are designed like rectangular aluminum cans. Inside these metal cans, a thin film of three layers -- in the sequence of cathode, separator and anode -- is rolled inside like toilet paper. In the case of pouch batteries, a roll or stack of battery components is packaged and wrapped with thin, elastic aluminum plastic film in a flat rectangular shape. LGES produces pouch and cylindrical batteries, while SKI manufactures only pouch batteries.
Prismatic batteries not only offer a reliable supply chain, but also price competitiveness to automakers.
“Prismatic batteries are rectangular aluminum cans, so automakers can simply install them on EVs like Lego blocks without additional packaging process. Pouch batteries, which are in flat rectangular shape, have to be put together into a pack, and then into a module, the process of which drives up the overall costs,” a battery industry official said.
According to Swedish market tracker EV Volumes, VW last year ranked second in global sales of electric vehicles, selling 424,341 worldwide, recording a 197 percent spike on-year. VW is in close pursuit of Tesla, which topped the global electric vehicle market last year by selling 499,535, a 36 percent growth from a year prior.
By Kim Byung-wook (
kbw@heraldcorp.com)
