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Fueled by Tesla deal, LG Chem goes full throttle on EV batteries

Share price surges 60% this year on growing market share.

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LG Chem‘s shift to automotive batteries has moved into high gear, snagging deals with Tesla and other top automakers while ramping up capital spending in a rush to cement its lead in a rapidly growing market.

LG Chem started supplying batteries to Tesla Model 3 vehicles produced at the US automaker’s Shanghai factory this year.

In addition, the chemical producer has signed deals with General Motors, Hyundai Motor, and China’s Geely Auto Group. The company invested KRW 3.9 trillion (USD 3.24 billion) to raise battery output in 2019, more than twice the year-earlier figure.

Investors have embraced the shift. Its stock has gained 60% since the start of the year, flirting with an all-time high marked nine years ago.

“Even in the economic crisis caused by the pandemic, we mustn’t give up investments in the future,” said CEO Shin Hak-cheol, who moved to LG Chem last year from 3M, where he was vice chair. Shin climbed the ladder of the US company, starting at its South Korean arm where he joined in his 20s.

Read more: Tesla’s battery supplier CATL leads the market with USD 70 billion market cap

Shin’s bullishness is backed by strong demand. A source close to the manufacturer said outstanding orders for the company’s electric vehicle batteries have climbed to KRW 150 trillion– 18 times higher than the battery operation’s revenue for 2019.

LG Chem ranked fourth among automotive battery makers in 2019, with a market share of around 10%. Since the pandemic, LG Chem has gained ground against rivals.  As of the end of May, the company’s market share stood at 24%, surpassing China’s Contemporary Amperex Technology Co. Ltd., or CATL,  and Panasonic, to claim the industry crown, according to SNE Research.

The automobile business requires vast upfront investments. LG Chem’s borrowing reached KRW 11.6 trillion at the end of March, more than double the level of two years ago. The battery operation incurred an operating loss of 454.3 billion won in 2019 due to heavy spending.

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To lighten the burden, the company last month announced the sale of its liquid crystal display polarizer business to a Chinese buyer. That operation had faced an uncertain future since group member LG Display was scaling back its LCD business.

LG Chem aims to buoy EV battery sales from KRW  8.4 trillion in 2019 to KRW 31 trillion in five years, an ambitious figure that would top the company’s total revenue of KRW 28 trillion for 2019.

This goal illustrates the company’s transformation into an automotive battery supplier rather than focusing on the petrochemical business, which generated half of its revenue just last year. Automotive batteries are expected to undergo rapid market growth of 25% per year, according to IHS Markit.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.