At last Friday’s general meeting in Seoul, LG Chem Ltd.’s shareholders voted in 82.3% in favour of splitting out the company’s battery business from the main company. LG Chem’s battery division is currently the world’s biggest manufacturer of electric car batteries and this split will cement their status as they face steep competition from China’s CATL and as global demand for electric vehicles grows.
Lee Ji-yeon, an Analyst at Shinyoung Securities noted that “If you look at the business, spinning it off is the best option because it will need more funds for expansion.” For now, LG Chem will retain 100% ownership of the battery division, but are planning for an IPO, which may take up to a year to complete.
Over the first eight months of 2020, LG Chem became the world’s largest supplier of lithium-ion batteries to automakers. According to SNE Research, its market share went from around 11% of supply a year ago to 25% at present. They have been commended for making early strides into the automobile sector, establishing a solid network of relationships with car manufacturers and growing their in-house expertise and technical capability. Mark Newman, Senior Analyst at Sanford C. Bernstein explained in a note to Bloomberg that “Their position is very, very strong. They have some geographical dominance in Europe and the US and some strong relationships with major carmakers outside of China.” LG Chem’s early entrance to the manufacture of EV batteries certainly helped them gain this market dominance as well.
One of the major benefits to this company split is the new access to investors that the battery division was previously unable to target due to ESG commitments. As Newman further explains, “Even though they’ve got this world-beating, strong battery business – currently the No. 1 in the world – they don’t get the benefit, because the petrochemical business [of LG Chem] is effectively a negative on the stock.” Splitting off the battery division will help to improve their access to capital and push through with their expansion efforts. By 2023, LG Chem’s battery division is aiming to more than double their manufacturing capacity from around 120 gigawatt hours this year to around 260 gigawatt hours by 2023 and by 2024, annual sales are expected to grow to over 30 trillion won ($26.5 billion) from an estimated 18 trillion won in 2021.