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Business trends

South Korean battery makers look beyond China for growth

SK Innovation and LG Chem add plants to supply Europe and US

SK Innovation looks to open three new plants for lithium-ion batteries by 2022, all supplying the U.S. or Europe.

SEOUL/FRANKFURT, Germany -- South Korean producers of lithium-ion batteries are looking to develop new markets in Europe and the U.S. as fierce competition and regulatory restrictions hamper their growth in China, the world's largest electric-vehicle market.

SK Innovation, an energy and chemical arm of conglomerate SK group, intends to open automobile battery plants in the U.S. and Hungary by 2022. LG Chem, the No. 4 player worldwide, plans to use its second Chinese plant under construction in Nanjing as an export hub to markets like the U.S. and Europe.

South Korean battery makers once led the Chinese market but have ceded share to Chinese players of late as Beijing pushed policies designed to foster local technology. The Korean camp hopes to make up the lost ground by cultivating other promising markets elsewhere, such as Europe where governments are leading efforts to cut CO2 emissions from automobiles.

"We will spend $1.6 billion and will consider an additional investment of up to $5 billion down the road," SK Chairman Chey Tae-won said, referring to the U.S. plant planned in the state of Georgia. The plant's annual capacity will be 9.8 gigawatt-hour equivalents, enough to power 327,000 electric vehicles, the company said.

The company is building two other plants, each with a capacity of 7.5 gwh, in Hungary and the Chinese city of Changzhou for completion by 2022. Output from the Changzhou facility will be shipped mainly to Europe.

SK Innovation's three new facilities will more than quintuple the company's global capacity, reaching nearly 30 gwh.

LG Chem's Nanjing plant, slated to begin production in October 2019, is expected to supply such overseas automakers as Daimler, General Motors and Indian automaker Mahindra & Mahindra.

China accounts for roughly 60% of global unit sales in electric vehicles, and battery suppliers like Panasonic, LG Chem and Samsung SDI were leading players there until a few years ago.

But Chinese competitors like Contemporary Amperex Technology Ltd. and BYD have come to hold high market shares, benefiting heavily from Beijing's policies, such as subsidies for cars powered by batteries procured from Chinese suppliers.

CATL, founded in 2011, has quickly become the global battery leader.

Political tensions between Seoul and Beijing also have worked against South Korean companies. Seoul's deployment of the U.S. Terminal High-Altitude Area Defense system prompted many Chinese consumers to boycott South Korean products.

"We have not been able to increase Chinese sales much," lamented an employee at a big battery maker.

But other markets are starting to emerge. Global sales of electric vehicles will reach 5.4 million units in 2025, more than quadruple the 2018 projection, Tokyo-based Techno Systems Research forecasts. The share coming from the Chinese market looks to shrink below 50%.

SK Innovation is quickly boosting its European presence, securing a contract in November to supply batteries to Volkswagen.

"We are the world's second-largest supplier of core material separators and our batteries based on material technology have customer trust as reliable," said Kim Tae-hyeon, who heads SK Innovation's battery operations.

The U.K. and France have decided to phase out sales of gasoline and diesel cars by 2040. Automakers including Volkswagen and Daimler aim to make electric vehicles account for 25% of new-auto sales in 2025, which in turn would create huge demand for batteries. Volkswagen looks to spend 50 billion euros ($56.9 billion) for battery procurement through that year, while Daimler budgets 20 billion euros through 2030.

The European Union decided in mid-December to target a 37.5% cut in passenger-car carbon emissions in 2030 from 2021 levels, a move certain to accelerate the shift away from gas-powered vehicles. But Europe's heavy reliance on Asian suppliers has raised alarm. If local battery makers gain ground, South Korean companies will face fierce competition there as well.

And South Korean suppliers do not intend to shift away from the key market of China. Beijing intends to ease regulations next year, making it easier for foreign companies to set up electric-vehicle ventures and plants, and South Korean companies are slowly resuming efforts to set up new plants.

LG Chem hopes to boost supply to the Chinese market from the Nanjing plant once subsidy restrictions are lifted.

South Korean industry has suffered slowing demand in key products like smartphones and flat-screen televisions, while automotive batteries offer a rare bright spot. But the battery makers are said to be taking orders from automakers at large discounts in a push to expand market share. Expanding operations while disregarding profitability could come back to haunt them as LCD panel makers learned in a supply glut.

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