If LG Chem wants to surpass CATL, it can’t just rely on Tesla

The power battery industry is in constant battle.

This month, CATL's market value remains at a trillion yuan scale, and it has also launched the "EVOGO" battery swap brand and a series of battery swap services, officially entering the new energy vehicle battery swap field. After seeing this, LG Chem, which has been competing with it for many years, is a little restless.

Today, LG Energy Solution, a subsidiary of LG Chem, officially landed on the Korea Stock Exchange. After listing, the stock price opened at 597,000 won per share, a 99% increase from the previous issue price of 300,000 won per share. The market value after listing also reached 116.8 trillion won (about 616.9 billion yuan).

Not only that, LG Energy Solution's total fundraising in this round reached US$11 billion, and its listing also became the largest IPO in the history of the Korean capital market.

Due to the large amount of funds raised and the plan to expand production capacity revealed in the prospectus, the industry believes that this series of actions, such as the listing of LG New Energy Technology, is a "pre-war preparation" for LG Chem to challenge CATL. After all, LG Chem has surpassed CATL before.

Judging from the time of entry into the industry, LG Chem was established about ten years earlier than CATL, but the former only really started to develop lithium battery business around 1999. After the latter was established in 2011, it surpassed LG Chem with the support of national policies and the protection of the "white list".

By 2019, CATL has become the "double overlord" in the global power battery industry and the Chinese power battery track. In the global market, LG Chem can only lag behind CATL; in the domestic market, LG Chem is even less known.

It was not until the first half of 2020 that LG Chem surpassed CATL in global installed capacity, which became a focus of attention in the industry.

LG Chem was able to achieve that reversal at that time thanks to its supply of batteries to Tesla. At the end of 2019, Tesla's Shanghai factory was completed, and products such as Model 3 began to be delivered globally. As the main battery supplier, LG Chem's installed capacity also increased accordingly.

But for LG Chem, this surpassing was short-lived. In the second half of 2020, CATL once again topped the list of global power battery installations. More importantly, as the "battery shortage" in the new energy vehicle industry began to spread at the beginning of last year, automakers such as Tesla, NIO, and GAC Aion began to develop their own batteries to ensure that they would not be "choked".

With the power battery industry in turmoil and automakers developing their own batteries, it may be difficult for LG Chem to find the "next Tesla".

But in order to continue to catch up, or even surpass CATL again, LG Chem had to spin off its subsidiary and list it on the stock market in exchange for "ammunition." So, what are the chances of LG Chem surpassing CATL again?

1

Listing plan that must be completed

It is undeniable that LG Energy Solution has become another giant in the Korean capital market.

After LG Energy Solution went public, its market value has reached 116.8 trillion won (about 97.2 billion US dollars). In comparison, Samsung Electronics, which is also listed on the Korea Exchange, has a market value of 497.31 trillion won. This also means that LG Energy Solution has become the second largest stock in South Korea after Samsung Electronics.

The market has given an optimistic evaluation of LG Energy Solution's listing. Yuanta Securities Korea analyst Cho Byung-Hyun told the media that this new market giant may also continue to attract funds away from other Korean stocks. "This is a must-buy stock."

According to Bloomberg, after LG Energy Solution goes public, its parent company LG Chem will retain 81.8% of the shares of the battery subsidiary. "With the listing of LG Energy Solution, LG Chem's previous resources and capabilities in power batteries can be further integrated, which will be of great help to LG Chem and its future development," Zhang Xiang, a researcher at the Automotive Industry Innovation Research Center of North China University of Technology, told Lianxun Travel.

Because of this, LG Chem has actually been preparing for the listing of LG New Energy Energy for a long time.

As early as December 2020, LG Energy Solution was separated from LG Chem and a new company was established as a separate battery business. Kim Jong-hyun, president of LG Chem's original battery business, was appointed as the company's CEO. At the time, the industry believed that this move was most likely to prepare for an independent listing later.

Image source: LG New Energy official website

Just half a year after LG Energy Solution was established, it submitted an application for listing to the Korea Stock Exchange and planned to complete the listing at the end of last year, but this listing plan was soon disrupted by a large-scale recall.

At the end of July 2021, General Motors announced that it would recall nearly 69,000 Bolt electric vehicles produced from 2017 to 2019 nationwide. The reason for the recall was due to production defects in the battery packs equipped in these vehicles. These defects could cause vehicle fires, and these battery packs with hidden dangers would be replaced.

According to a report provided by the National Highway Traffic Safety Administration (NHTSA), the manufacturer of these battery packs is LG's new energy business unit.

Little did people know that a month later, GM announced again that because high-voltage battery packs may cause vehicle fires, the scale of the recall from a month ago would be expanded. In addition to the Bolt produced from 2017 to 2019, all models of this brand produced from 2019 to 2022 are within the recall scope, totaling more than 73,000 vehicles.

According to GM officials, this round of recalls will cause the company to lose $1 billion, and the Bolt model will be suspended indefinitely. In addition, since the batteries of the vehicles involved in the large-scale recall were provided by LG Chem, GM also sought compensation from LG Energy Solution at that time.

Due to the recall, LG Energy Solution's listing plan was suspended. "We are reviewing the application, but cannot provide information on the cause of the delay." The Korea Exchange once publicly stated about LG Energy Solution's suspension.

Just as people were speculating whether LG Energy Solution would remain shelved, LG Chem announced in October last year that it had reached an agreement with General Motors and agreed to pay it US$1.9 billion in compensation. This payment also became the largest amount of compensation since LG Chem was founded.

LG Chem and GM reached a compensation agreement. Screenshot from GM's official website

Although LG Energy Solution suffered a loss of $320 million in the third quarter of last year due to the compensation, it may be worth it because the compensation agreement with GM has enabled LG Energy Solution to resume its listing review.

At the end of last year, LG Energy Solution announced again that it planned to raise approximately 12.8 trillion won (approximately 68.092 billion yuan) through an initial public offering (IPO) on the Korea Stock Exchange.

It should be noted that LG Energy Solution's listing today comes just one year after it was spun off from LG Chem. For this reason, the industry believes that LG Energy Solution's independent listing may be something that LG Chem must accomplish.

It's not surprising to have such a feeling.

In the field of power batteries, LG Group is a "pioneer". In the early 1990s, with the development of 3C products such as mobile phones, LG saw the development opportunities of lithium battery products in these fields and began to lay out lithium batteries in 1995. However, it was not until the beginning of 2000 that its lithium battery products were truly launched and LG Chem was split off and operated separately.

Around 2007, with the development of new energy vehicles around the world, LG Chem also expanded its lithium battery business from mobile phone 3C electronic products to the field of power batteries, and began supplying local car companies such as Hyundai Motor, and has formed a certain influence on a global scale.

But in 2011, with the establishment of a battery manufacturer called "CATL", and after it won battery orders from established automobile manufacturers such as BMW and Mercedes-Benz in the second year, CATL quickly surpassed LG Chem and became the "number one" in the global power battery market.

According to data from the Forward-looking Industry Research Institute, in the 2019 ranking of installed capacity market share of power battery manufacturers, CATL ranked first with 28.2%, while LG Chem lagged behind CATL with 10.3%.

But by 2020, LG Chem surpassed CATL. According to SNE Research statistics, in the global ranking of total installed capacity of power battery manufacturers from January to July 2020, LG Chem ranked first with a market share of 25.1%, and CATL ranked second with 23.8%.

From January to July 2020, the total installed capacity of global power battery manufacturers accounted for

Data from SNE Research, mapped by Lianlian Travel

Due to CATL's long-standing dominant position in the global power battery market, LG Chem's surpassing of CATL at that time became the focus of attention in the industry, and LG Chem was also highlighted.

But what LG didn't expect was that such glory would not last long.

In August 2020, according to SNE Research data, CATL regained the world's top spot with a 25.9% share of installed power batteries that month, and LG Chem fell back to second place. LG Chem was naturally unwilling to accept this result, so much so that it put forward the slogan of "surpassing CATL in global market share and becoming the world's number one" this month.

But compared to the overtaking two years ago, if LG Chem wants to surpass CATL again, it doesn’t have much support left.