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LG Chem to spin off battery unit amid rising EV demand

South Korean company considers listing of LG Energy Solution

LG Chem will spin off its battery business as demand for electric vehicles rises. (Photo courtesy of LG Chem)

SEOUL -- LG Chem is to spin off its battery business in December, seeking to capitalize on rising interest in the sector as global demand for electric vehicles rises.

The South Korean company said on Thursday that its board had approved the plan for a new subsidiary, tentatively named LG Energy Solution. The decision is subject to shareholder approval at a general meeting scheduled for Oct. 30.

"This is the right time for the spinoff as the battery industry is growing rapidly and profits from the EV battery sector are increasing," said the company in a press release. "With the spinoff we can focus on a specialized business sector as well as improve efficiency in management, boosting values for the company and shareholders."

The global EV battery market is expanding quickly. McKinsey, the consultancy, has projected that by 2040 battery demand from EVs produced in Europe will reach 1,200 gigawatt-hours per year, compared with 25.5Gw/h last year. Projected battery demand from EVs produced in Europe is more than five times the volume of currently confirmed battery projects in Europe, according to McKinsey.

LG Chem is a leading player in the EV battery market, accounting for one-quarter of market share. The company supplies many global automakers including Hyundai Motor, Kia Motors, GM, Ford, Volkswagen, Renault and Volvo.

LG Chem will own 100% stake in LG Energy Solution after the spinoff. It said it was considering whether to pursue a separate listing for the battery unit.

Shares in LG Chem dropped 6.4% on Thursday, reflecting investor concern that the spinoff will hurt the value of the company, which runs petrochemical and bioscience businesses.

Analysts said the company would enjoy better performances as its chemical cycle is improving beyond batteries.

"We see further upside to LG Chem's share price, driven by growth in electric-vehicle batteries and an uptrend in the chemicals cycle," said Cindy Park, an analyst at Nomura. "Growth in the chemicals business year-to-date has surpassed our expectations, with 'stay-home' demand for home appliances, COVID-19 fiscal policies boosting construction work, and COVID-19 spurring demand for single-use plastics and masks." 

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