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Business

South Korea's LG seeking renewed growth driven by EV batteries

SEOUL -- South Korea's multinational conglomerate LG is staking its future on batteries for electric vehicles and other car products.     

Gweon Yeong-su, left, poses at a ceremony to sign a business cooperation agreement with the Nanjing government in Seoul.

     The group has decided to bet on the rapid growth of the global market for EV batteries as its chemical unit is gaining ground in the market.

     LG Chem has bagged a series of contracts to supply EV batteries to major automakers this year.

     On July 2, the group's chemical unit signed a business cooperation agreement with the Chinese city of Nanjing, where it plans to build a new plant to manufacture lithium-ion batteries for electric cars.

     At the signing ceremony, held in LG Chem's headquarters in Seoul, Gweon Yeong-su, who heads the company's battery unit, expressed his confidence in the business's future.

     "In 2016, when the spread of electric vehicles begins in earnest, we will become well-established as the world's No.1 player," Gweon said.

     Since the beginning of this year, LG Chem has struck battery supply deals with Renault of France, SAIC Motor of China and Audi of Germany. The company's customer list now includes over 20 carmakers.

     Despite its announced plan to integrate its R&D operations with those of its ally Nissan Motor, Renault has chosen LG as its partner in developing next-generation batteries over the battery maker jointly set up by Nissan and NEC.

     South Korea's share of the global lithium-ion battery market surpassed Japan's in 2011. But according to Techno Systems Research, Panasonic still holds the largest share in the market for EV batteries, which require high levels of technological reliability. LG Chem is the No.3 player in the market. Japanese makers still have a competitive edge in this segment.

     But a senior executive of the Korean Battery Industry Association was sanguine about the outlook for the country's battery industry. "The technology levels of South Korean makers have risen significantly," said the executive.

     Samsung SDI, a unit of the gargantuan Samsung Group, has the largest share in the global lithium-ion battery market. But LG Chem is a bigger player in the market for car batteries.

     LG Chem made what has turned out to be a smart strategic move when it established a battery development center in the U.S. as early as in 2001.

     The move helped the LG unit win the contract to supply batteries for General Motors' Volt electric vehicle.

     U.S. President Barack Obama attended the company's cornerstone-laying ceremony for a new battery plant in Michigan held in 2010.

     Despite its general image as a conglomerate built around home electronics businesses, the LG group's largest profit generator is LG Chem. 

     LG Chem racked up an operating profit of 1.7 trillion won ($1.66 billion) in 2013, over 30% larger than the figure for LG Electronics, whose sales are more than twice as much as LG Chem's.

     Petrochemical products account for most of the chemical maker's profits, but the company sees the battery business as its main future growth engine.

     In addition to enjoying strong sales of batteries for household use, the company is likely to bring its car battery operations into the black in 2015, said an analyst.

     The entire LG group is stepping on the gas to expand its car-related businesses. The group's new business strategy developed in 2012 defines auto parts as one of the three priority areas along with energy and lifestyle products.

     LG Electronics has set up a new business unit devoted to car parts. It has opened Incheon Campus -- an auto parts development center equipped with facilities for designing, prototype production and environment tolerance testing -- which is located close to the Incheon International Airport.

     The company has assigned some 800 researchers, engineers and other employees to the center, which occupies 100,000 sq. meters of land. More than 30 billion yen ($278 million) has been invested in the facility.

     The center's mission is to develop products for a wide range of next-generation eco-friendly vehicles, including EVs, plug-in hybrids and fuel cell vehicles.

     The LG group's other companies important for its car product strategy include LG Display, which makes flat display panels, LG Innotek, which supplies electronic parts and lighting equipment, and LG CNS, which provides information technology services.

     The new development center will integrate the product technologies of these group companies to develop competitive car components.

     But the LG group will face fierce competition from its Japanese and Chinese rivals in trying to expand its global share in the car component market.

     Japanese electronics makers are making all-out efforts to bolster their battery and other car parts businesses to secure their long-term survival. Chinese manufacturers are certain to pose serious threats to the South Korean giant by taking advantage of their presence in the country's huge auto market, now the world's largest.

     The challenge facing the LG group in its quest to become the leading player in the car parts sector is familiar to many South Korean manufacturers, which have to climb up the technology ladder to catch up with Japanese rivals while fending off growing competition from Chinese makers following closely behind them.

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