South Korea's LG Chem has announced plans to spin off its electric vehicle battery business - the largest in the world - in order to finance an expansion of its facilities as it benefits from an upsurge in orders.
LG Chem
The company, which supplies US carmakers GM and Tesla, want to boost its production capacity to meet the ever-growing number of orders for electric vehicle batteries coming as a result of tighter environmental regulations in Europe and China.
While Covid-19 has slowed down the demand for EVs, LG Chem has around five years of orders on its books - equivalent to around €107 billion.
The battery business, which is scheduled to be spun off in December, will be 100% owned by LG Chem, but the Asian country’s biggest petrochemical company said it would consider a stock market listing for the new business.
In a statement, the company said: “We came to the judgement that this is the right time for the corporate spin-off as the battery industry is growing rapidly and structural profits in the EV battery sector are being made in earnest.”
The company also said that it is "investing over 3 trillion KRW (€2.2 billion) annually in facilities, and therefore, the need to procure large investment funds in a timely fashion has also increased."
According to LG Chem's own forecasts, the battery business is set to generate 30 trillion KRW (€22 billion) in annual sales by 2024.
Earlier this year, the South Korean company overtook China's CATL to become the industry leader, controlling around 25% of the global market.
The EV battery unit reported an operating profit of 155.5 billion KRW (€114 million) in the second quarter and expects bigger earnings in the second half on the back of growing demand from European carmakers and through its supply deal with Tesla.
While shares in LG Chem more than tripled between March and late August, hitting a ten year high, they dipped by 7% with investors showing concern that spinning off the business would leave the company overly reliant on its less lucrative petrochemicals operations.
Global sales of EV batteries fell by almost 17% in the first seven months of 2020 as a result of the coronavirus pandemic. However, LG Chem bucked the trend, and sales virtually doubled based on the rising popularity of vehicles such as Renault's Zoe, Audi's E-tron and Tesla's Model 3.
The company's global EV battery market has ballooned from around 11% in 2019 to over 25% in July, putting it ahead of rivals Panasonic and CATL.
LG Chem has plants in South Korea, China, Poland and Michigan in the US, where it is also building a plant in Ohio to supply GM. The company, which has a joint venture with Chinese carmaker Geely, also began to supply batteries to Tesla’s new Shanghai factory this year.
LG Chem spin off corporate structure
Source: LG Chem
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