South Korean Chaebol, Toppled from Pedestal by Chinese Battery Champion

Source | ShuDuShe, Author | Lao Niu

In 2018, a report from UBS made a bold prediction - by 2025, LG Chem would become the global leader in power batteries.

Then, in 2020, a report from SNE Research, a South Korean market research firm, showed that in the first quarter of that year, LG Chem had seized first place with a market share of 27.1%.

Everything seemed to be confirming UBS's prediction.

However, the story took a sharp turn. According to data from Weber Consulting, in 2024, LG dropped to third place in the global new energy vehicle (NEV) battery market, with its share falling to 10.8%. Not only was it far surpassed by CATL, but it was also overtaken by BYD. The latter was not even mentioned in UBS's previous predictions.

The South Korean chaebols have been pushed off their pedestals by China's battery kings.

Jeong Bum-Mo Plants the Seeds

In 1992, Jeong Bum-Mo saw rechargeable batteries that could be reused during his visit to the UK. He brought back samples and handed them over to the subsidiary Lucky Metals for research.

At that time, LG had grown into an enterprise with annual sales of 30 trillion won under the efforts of two generations, Jeong In-Hoi and Jeong Ji-Soo. Jeong Bum-Mo, the eldest son, was recognized as the successor of LG. Three years later, he became the third-generation chairman of LG.

The progress of the battery business did not go smoothly. It wasn't until 1997, after LG Chem merged with Lucky Metals, that they successfully developed small-sized batteries. At this time, Jeong Bum-Mo was busy dealing with the financial crisis, and the battery business was almost monopolized by Japanese companies, which had early investments, large capacity, accumulated technology, and low costs. LG struggled in the battery market.

In 2005, LG's battery business incurred losses of nearly 200 billion won, having been losing money for many years, and voices advocating the divestiture of the battery business emerged internally.

Jeong Bum-Mo chose to persist. "Don't give up. Focus on the future and research and development."

The subsequent events validated Jeong Bum-Mo's vision. This legendary entrepreneur, who grew LG from 30 trillion won to 180 trillion won, waited for the advent of the electric vehicle boom.

Kia Motors, a local company in South Korea, became LG's first major client. In 2007, Kia Motors selected LG Chemical as the battery supplier for its HEV (Avante).

Subsequently, General Motors became another overseas client for LG. At that time, GM was preparing to develop the plug-in hybrid Volt model. Among two lithium-ion battery supply kits, GM chose LG Chem. In 2009, GM officially announced that LG Chem would be the mass-production battery supplier for Volt.

In the early stages of electric vehicles, LG quickly took the lead. It entered the supply chains of mainstream car manufacturers such as Daimler and Volkswagen, and cooperated with 13 out of the world's top 20 automobile brands, virtually covering all major European automotive manufacturers.

At this point, although LG had the ability to sit at the table, its competitors, Japanese companies, remained strong.

In 2009, Tesla emerged out of nowhere, directly disrupting LG's plans.

Panasonic became Tesla's supplier, providing 18650 batteries to Tesla. In 2013, Tesla and Panasonic signed their third agreement, expanding cell supply to 1.8 billion units. The latter became Tesla's exclusive strategic supplier.

With Tesla's global influence, Panasonic batteries established significant brand recognition worldwide. A detail is telling: in 2015, when Niu released its electric scooter, it specifically emphasized the use of Panasonic 18650 lithium-ion batteries.

During this period, LG was quietly expanding its business and gradually completed its global factory layout in China, the United States, South Korea, and Europe.

In 2018, Jeong Bum-Mo passed away without seeing the day when LG batteries would take the crown. However, he successfully nurtured the tree he planted 26 years ago into a towering giant. Standing on the风口, LG's battery business turned profitable and became the pillar business of the LG Group.

LG's true second turning point also occurred after Jeong Bum-Mo's passing.

Over-reliance on Tesla eventually led Panasonic to be devoured by Tesla. Panasonic deeply participated in Tesla's solar roof battery project. However, this business required higher and higher investments, leading to opposition within Panasonic. Disputes arose between the two parties. In 2019, Tesla's Shanghai Gigafactory began construction, and Musk started to adopt a diversified battery supply strategy.

LG entered Tesla's list, eroding much of Panasonic's original market share. Meanwhile, traditional automotive giants in the European market also began to fully embrace electric vehicles, allowing LG's earlier layouts to bear fruit.

In 2020, LG Chem spun off its power battery business and established LG Energy Solution, initiating its IPO process. That year, LG Energy Solution maintained its position as the global leader in monthly installation volumes thanks to its impressive performance in the European market.

This was the peak of LG Energy Solution, yet also the beginning of its decline.

New Rivals

In 2022, LG Energy Solution went public, with its stock price surging by 99%, making it the second most valuable company in South Korea after Samsung Electronics. Its fundraising scale of 68.3 billion yuan became the largest IPO in South Korean history.

Four years before LG Energy Solution went public, a Chinese company named Contemporary Amperex Technology Co., Ltd. (CATL) rushed into the capital market.

The trend of electric vehicles was noticed by both South Koreans and Chinese. Compared to Japan and South Korea, China has a larger market and more substantial support.

In 2011, the state issued the "Guidance Catalogue for Foreign Investment Industries," restricting foreign sole proprietorship enterprises from producing automotive batteries. Zeng Yubin, from Fujian Ningde, keenly spotted the opportunity. He founded a new company in his hometown, naming it after his hometown, "Contemporary Amperex Technology Co., Ltd." (CATL).

At that time, Zeng Yubin was already an expert in lithium batteries, recognized by the state as a major contributor to China's lithium battery industry. At the age of 31, he co-founded ATL with Liang Shaokang and Chen Tanghua and secured an order from iPod in just four years, becoming an industry benchmark.

After founding CATL, he secured a strategic partnership with BMW Group within a year. Subsequently, CATL successively won orders from several enterprises including Yutong and BAIC.

In 2015, CATL surpassed Samsung and LG to enter the global top three, just behind Panasonic and BYD, the latter mainly supported by the electric vehicle giant.

This was a period of intense industry transformation. Zeng Yubin understood both technology and boldness. Hanging in his office was not "Success Comes from Hard Work," but "Strong Wagering Spirit," a quality that allowed him to make precise decisions and seize opportunities at critical moments.

In 2017, Zeng Yubin bet on the ternary lithium route, increasing the R&D expense ratio to 8.2%. Coincidentally, policies encouraged models with higher energy density and longer endurance, and CATL successfully caught the policy windfall.

In 2020, CATL chose to expand capacity in reverse during the critical phase of the electric vehicle explosion.

In July 2021, CATL released its first generation of sodium-ion batteries, achieving global-leading energy density levels. CATL was rated as a "lighthouse factory" by the World Economic Forum. The following year, CATL released its third-generation CTP technology—Qilin Battery, gradually breaking through the boundaries of single chemical systems.

During these years, LG Energy Solution struggled in the Chinese market. When it prepared to make a move in the Chinese market, it failed to qualify for the whitelist. When the ternary lithium battery trend slowed down, LG lacked a phosphate iron lithium route, suffering another blow. By comparison, CATL, with its technical leadership and ample capacity, became almost the sole choice for batteries for China's NEV manufacturers.

CATL's story is a microcosm of domestic battery manufacturers in this phase. Besides this company, domestic battery enterprises such as CALB, Guoxuan High-Tech, Farasis Energy, and Sunwoda also rapidly rose in the fierce competition.

LG Energy Solution faced a pack of wolves.

Initially, LG could still maintain a certain competitiveness through its global market layout. Before going public, Kwak Yong-Soo once stated, "LG Energy Solution has a wider range of customers, while CATL's factories are mainly located in China."

Indeed, in 2020, LG Energy Solution overtook CATL due to market concentration, but he did not realize that automakers were fickle—Tesla could easily ditch Panasonic, and other automakers would decisively abandon LG Energy Solution.

Vicious Cycle

Like other Japanese and South Korean companies, LG Energy Solution also pinned its bets on ternary lithium batteries. This battery technology has high energy density, making it the choice for long-range models, but ternary lithium batteries have poor safety and are not heat-resistant.

This became a significant隐患for LG Energy Solution.

In 2020, Hyundai Motor announced the recall of 25,558 KONA EV electric vehicles produced from September 29, 2017, to March 13, 2020. The reason was problems with LG Energy Solution's batteries.

In the same year, General Motors recalled 69,000 Bolt electric vehicles globally manufactured between 2017 and 2019. For the recall, GM stated that the recalled vehicles all used batteries produced by LG Chem, which posed fire hazards when fully or nearly fully charged. In 2021, LG agreed to pay up to $1.9 billion (approximately 12.25 billion RMB) in compensation to General Motors.

Battery safety issues are the most sensitive nerve for electric vehicles. LG Energy Solution's pitfalls were ones that CATL and others had previously encountered. Unfortunately, these issues appeared during a crucial phase of industry competition, delivering a fatal blow to LG Energy Solution. To ensure safety, automakers began exploring other possibilities, with some even switching to phosphate iron lithium.

Adding insult to injury, in early 2021, LG Energy Solution experienced a production shortage, causing a supply disruption crisis for major electric vehicle models of Audi, Porsche, Jaguar Land Rover, and others. That year, CATL expanded its battery annual production capacity by 1.5 times, reaching a utilization rate of 95%.

In the first half of 2022, CATL installed 69 GWh of batteries, growing by another 111% year-on-year. In contrast, LG Energy Solution installed only 28 GWh, increasing by a mere 4%. There was a clear gap in installation volume. Behind LG Energy Solution was BYD, whose installations reached 24 GWh.

One of the reasons for LG Energy Solution's IPO was to expand capacity. However, its dispersed global market became a hindrance.

Take the United States as an example. Encouraged by policies, LG Energy Solution invested heavily in building factories in North America and Europe. However, upon actually building the factories, it was discovered that manufacturing in the US could not meet demand. Nearly all positive and negative electrode materials were imported, with scarce local supply capabilities, and other upstream resources were also in short supply.

The originally planned construction of the largest commercial electric vehicle battery factory in Europe in Turkey was ultimately abandoned due to the country's slow adoption of electric vehicles.

Production capacity affects supply, which in turn affects automakers' strategies, forcing them to increase alternative solutions. This further leads to a shrinking demand, affecting capacity utilization, thus creating a vicious cycle.

At this moment, LG Energy Solution faced China's price war. According to TrendForce statistics, in June last year, the price of power battery cells dropped to 0.41-0.5 Wh; the average price of phosphate iron lithium storage battery cells also fell to 0.41 Wh, declining by 4.2% month-on-month. Facing China's battery production advantage and the near-endless "price war," LG Energy Solution was powerless.

By 2025, LG Energy Solution's planned capacity will only reach 342 GWh. According to Shanxi Securities statistics, CATL's planned capacity target for 2025 will be around 600 GWh. LG Energy Solution even lags behind CALB, whose planned capacity is 500 GWh.

In just four years, such a huge gap in capacity, LG Energy Solution faces dual blows of customer loss and inability to boost capacity.

In a letter to employees last year, Lee Shi-Hyuk, CEO of SK On, said, "We are at our wits' end and must work together." The predicament of this South Korean battery giant may foreshadow LG's future.

Inevitable Outcome

Last year, LG had no choice but to abandon its single technological route of high-end ternary lithium batteries and began seeking the development of lower-cost phosphate iron lithium batteries.

This year, to further remedy the situation, LG Energy Solution reluctantly sought to initiate battery technology cooperation. It announced accepting proposals from enterprises with innovative battery technologies, aiming to promote growth through technological collaboration.

In fact, this is also the road LG had to take. Tesla and other manufacturers have already accepted phosphate iron lithium, and Volkswagen announced that it would use phosphate iron lithium in its next generation of models. Even American traditional manufacturer Ford has accepted the phosphate iron lithium solution.

LG Energy Solution has no choice, but it seems to see no hope either.

The vicious cycle continues. In the January domestic power battery installation volume rankings, LG Energy Solution dropped out of the top fifteen list domestically. LG Energy Solution announced the suspension of construction of the battery production line for the energy storage system (ESS) at its factory in Arizona, USA. This is LG Energy Solution's second independent factory in the US, with total investment reaching 5.5 billion USD.

In April, LG Energy Solution withdrew from an electric vehicle battery manufacturing project worth 142 trillion Indonesian rupiah (617 billion RMB) in Indonesia.

In May, LG Energy Solution exited the electric vehicle charging station business.

Currently, its stock price continues to fall, repeatedly setting new historical lows, and the capital market no longer holds any optimism.

Previously, Bob Lee, President of LG Energy Solution's North America region and Chief Strategy Officer, urgently stated, "If the US retreats in the clean energy and electric vehicle sectors, the rest of the world will leave the US behind." The urgency of LG Energy Solution being comprehensively overtaken by Chinese enterprises is evident.

On the surface, LG Energy Solution's decline is mainly due to its technology being quickly overtaken by Chinese enterprises, its inability to compete with Chinese peers in terms of capacity, and the price war being the final straw that broke the camel's back. However, the deeper reason lies in the changing market landscape of the electric vehicle industry.

The few years when LG Energy Solution was overtaken coincided with the comprehensive development of China's new energy vehicle market. It's not that LG Energy Solution was inadequate, but rather that the Japanese, South Korean, and even European and American new energy vehicle markets couldn't help LG Energy Solution establish a competitive edge.

Although Chinese battery manufacturers may have concentrated markets, in such fiercely competitive environments, they always manage to produce highly competitive enterprises. When these enterprises emerge from the market and go global, LG Energy Solution has no countermeasures. In fact, when China's new energy vehicle market entered a rapid growth phase, LG's outcome might have been written then.

Original Source: https://www.toutiao.com/article/7507931026799329818/

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