The past Life and present Life of LG Chemical Power Battery Business

In 2001, the (CEO) meeting of the top manager of LG Group was extremely difficult. Because of a controversial discussion about the future of the battery business.

The problem for LG Chemical is that if it leaves the battery business, it could face a decade of continuous investment without a return.

Opponents of the lithium-ion battery project say, "do you have to bear a large deficit and force the battery industry?" In their view, global electronics companies such as Sony and Sanyo have been engaged in battery development enthusiastically. Is it necessary for LG Chemical, as a chemical company, to press ahead with this project?

Proponents believe that the lithium-ion battery market has a bright future and will become an important source of LG chemical revenue in the future.

The two sides quarreled.

In the end, the second-generation head of LG said: "I think it is right to continue the battery business." Start over with the belief that you will succeed. Don't give up, look far away, and focus more on research and development. "

Since then, LG Chemical's battery business has been retained.

Facts have proved that this forward-looking decision is correct.

It is this decision that has created an international leading enterprise in lithium-ion batteries.

According to the ranking of global power battery installed capacity published by SNE in 2020, LG Chemical ranks second in terms of 31GWh installed capacity, which is only 3GWh different from the first place in Ningde era.

In 2019, the Ningde era was also well ahead of LG Chemical 21GWH, and Panasonic was far ahead of it.

Today's LG chemical supply includes almost all European car companies, and the world's top 20 car companies have accounted for 13, making it the power battery company with the largest number of customers.

On December 1, 2020, LG chemical battery business became an independent legal person-LG Energy Solution (LG New Energy) was born.

To the outside world, a battery company that started with chemicals seems to have a unique advantage in its development. Do not know that the battery business of LG Chemistry is also from scratch, to achieve today's leading position. There have been many failures in the development of its battery business.

Under a series of flowers, there are many crises: a large number of customers and high quality means that many strong players covet it; large shipments mean that once there is a quality, it may be a major event affecting the world, and the consequences are often fatal.

Like a giant ship, marching in the adventurous shoals of the Torrent.

1. Cosmetics start

When it comes to LG Chemistry, the first thing that comes to mind is its chemical products, but in fact, it was formerly a cosmetics company that started out as a maker of face creams.

Woo Jen Hui, founder of the LG Group, was born in a small village in southern North Korea. He has opened a cloth shop, done foreign trade, transportation and other industries, and has accumulated some capital and experience. At the age of 40, he founded "Lexi Chemical Industry Company" (Lak Hui, pronunciation is the same as lucky), in 1947.

At first, Lexi Chemical only produced one cosmetics called "Lexi Cream". But Huren will find that consumers often complain that the lid of the cream bottle is easy to break when it falls on the ground. He is keenly aware of the business opportunity behind this: Huren will produce unbreakable cosmetic bottle caps.

In 1952, Le Xi introduced injection molding machines, South Korea began the plastic era, producing combs, toothbrushes, tableware and other daily necessities.

After tasting the benefits of diversification, Le Xi has expanded into the field of electronics.

In 1958, Le Xi founded the "Golden Star Society" (Gold-star), which is now called LG Electronics. The Golden Star Society has also made great achievements, producing South Korea's first refrigerator, air conditioner, and washing machine.

On January 1, 1982, Lexi Group officially changed its name to Lexi Venus Group.

Happy Venus seems to have a penchant for chemicals. after the light chemical industry, it began to advance into the petrochemical industry and grew into a comprehensive chemical and trading company.

After 1983, Lexi took petrochemical business as its core business, deepened the development of existing business areas such as daily necessities and precision chemistry, and re-launched cosmetics, pharmaceuticals and other fields.

In January 1995, Hexi Venus Group changed its name to LG, which is the abbreviation of the word "Happy Venus" (Lucky,Goldstar).

two。 Li-ion battery business has a difficult start.

After the birth of lithium-ion battery, LG chemistry began to dabble.

In the 1990s, lithium-ion batteries were invented, and the Japanese Sony Group was the first to industrialize them. With the application of lithium-ion battery, the weight and volume of portable electronic devices such as mobile phones, notebooks and calculators have been greatly reduced, and the market demand has increased rapidly.

LG, which has a deep layout of chemical materials, is acutely aware of the great impact of lithium-ion batteries. However, the lithium-ion battery in South Korea is still a blank, so LG Chemistry decided to start the research on lithium-ion battery, this year is 1995.

The project encountered great difficulties from the beginning. Although LG Chemistry has accumulated a lot in the field of materials, there is not a single battery professional on the team, only those majoring in "corrosion" and some people with Ni-MH battery experience.

In other words, LG chemistry can be brought back to the electrode from Japan, but no one can analyze it.

I don't know how to produce at all.

The first task of LG chemistry is to "understand" batteries.

To this end, LG Chemical began to try to establish cooperation with Hitachi and other Japanese companies, but the process was not smooth. Japanese enterprises have a strong awareness of intellectual property protection, not to mention technical cooperation, cooperation in equipment and material resources has been rejected.

In desperation, LG Chemical launched a backup plan to gain equipment knowledge indirectly by contacting Japanese start-up companies, developing and testing at the same time.

The small battery, which was used in notebook PC and so on in 1997, was finally successfully trial-produced by LG chemistry.

In 1999, LG Chemical became the first company in South Korea to successfully mass-produce lithium-ion batteries.

However, in the face of global electronics companies such as Sony and Sanyo, LG Chemical's battery business is difficult to achieve the expected profitability, and the battery industry is in crisis.

Then came the scene at the beginning of the article, in which whether the battery business was retained or not caused a great deal of controversy.

With the support of Mori, the battery business can be retained.

3. After two failures, he finally took down General Motors.

LG chemistry, which can not make a rapid breakthrough in the 3C field, began to explore new fields.

In 1997, Nissan produced the Prairie Joy EV, the first electric vehicle in the world that uses cylindrical lithium-ion batteries, which attracted a great deal of attention in the industry.

This also attracted the attention of LG Chemistry: in 2000, LG Chemistry set up a legal person to study electric vehicle batteries in the United States.

Before the electric car market starts, it is not easy to make the decision to continue to invest in this area. Because of the uncertainty of safety, performance and mass production, as well as the investment risk brought by R & D is very great.

If you want to survive, you must produce results as soon as possible. To this end, LG Chemistry has accelerated the pace of research and expanded the research manpower to more than 100.

But things are still not going well. High investment has not yielded any visibility results, and worries within the company have increased, constantly discussing the survival of the project.

To change this situation, there must be customers.

LG Chemistry is targeting General Motors.

General Motors was one of the earliest companies to explore electric vehicles. In 1996, GM began mass production of the world's first modern electric vehicle, the EV1. At that time, however, GM still used lead-acid batteries.

With the advent of lithium-ion batteries, GM has a new direction.

In 2006, LG Chemistry had the opportunity to participate in GM's electric vehicle project, but lost because of faulty samples submitted.

LG Chemical won't give up because they know exactly what it means to be in the supply chain of the world's largest carmaker.

LG Chemistry continues to improve its products and continue to create new opportunities.

In 2007, General Motors was launching the Volt project for electric vehicles, contacting LG Chemistry for verification. LG Chemistry eventually became one of the six companies, A123 and LG Chemistry were selected. But people are generally more optimistic about A123.

On the verge of becoming a running companion, LG chemistry can only put all its eggs in one basket.

LG Chemistry has accepted GM's schedule requirements, although it is almost impossible to complete all the verification at this pace. As a result, it can be predicted that the performance of the product is still not up to standard: the performance of the battery pack has declined significantly within a few months.

LG Chemical actively communicates with GM and shares development plans, improvement details, evaluation methods and other ways to find solutions.

Perhaps moved by the positive, sincere and hard-working attitude of LG Chemical, GM continues to work with it.

In the following year, LG Chemistry finally produced batteries to GM's satisfaction. In the end, LG Chemistry was selected as the only battery supplier for Chevrolet Volt.

GM mass-produced the car in 2010.

In fact, before getting the GM order, LG Chemical's power battery blossomed at home: LG Chemical won the Hyundai car order in 2007; in 2009, LG Chemical's first power battery was jointly developed with Hyundai Kia.

The situation of LG chemistry in the automotive field has been completely opened up. General Motors is the main customer of LG Chemical in the United States, and other customers include Ford and Chrysler. LG Chemical's plant in Michigan is basically responsible for the orders of the above three companies.

In 2020, LG Chemical won a large order from Tesla to supply batteries for Model 3 and Model Y in Tesla's Shanghai factory.

In February 2020, LG Chemical exclusively supplied batteries to the standard model of the US luxury electric car Lucid Motors from the second half of this year. The battery model is the 21700 cylindrical battery using NCM811. In addition, it has also established cooperative relations with Volkswagen and Audi.

Construction of a new power battery joint venture between LG Chemical and GM will begin in 2020, and the batteries will be used in GM's future electric car products, including new electric trucks from Cadillac sedans to the end of 2021.

LG Chemical almost covers the major vehicle companies in Europe and the United States, and is currently the power battery company with the largest number of cooperative car companies.

After more than 20 years of development, LG chemistry has accumulated quite a lot. LG chemistry starts with chemicals, and it has a comprehensive technical reserve in the four key material fields of positive electrode, negative electrode, electrolyte and diaphragm, and the depth of research and understanding of material science is difficult for other enterprises to reach.

The number of patents and trademarks of LG Chemical has always been in the forefront of similar enterprises in the world, and has always been in a rising state. As of 2018, LG had about 55000 intellectual property rights, of which batteries accounted for the highest proportion, accounting for about 40 per cent, according to Anxin Securities. The patent covers plastic body, SAP, polarizer, energy storage battery, ternary material and so on. Numerous patent protection has become the core competitiveness of LG chemistry.

4. Go to court with SKI

The role of these intellectual property rights and patents can be seen in the competition with SKI.

In April 2019, LG Chemical believed that SKI was suspected of embezzling its trade secrets and took it to the U.S. International Trade Commission ((ITC),), accusing SKI of stealing its trade secrets by hiring its former employees.

Compared with LG chemistry, Korean SKI started relatively late in the field of lithium-ion batteries and was not commercialized until 2012. However, the rapid growth of SKI in the field of lithium-ion batteries obviously poses a threat to LG chemistry.

According to the indictment submitted by LG Chemical to ITC, in the past two years, SKI has poached 76 core R & D talents in the power battery industry and required them to submit core engineering and technical documents during the transfer process, while SKI violated the "business ethics" by downloading the core files held by these personnel frequently after they joined the job.

LG Chemical has asked ITC to ban SKI lithium-ion battery and infrastructure technology that infringes on its trade secrets from entering the US market.

SKI didn't sit back and wait to die. On June 10, 2019, SKI announced that it would sue LG Chemical in the Seoul Central District Court of South Korea, demanding an apology and compensation from LG Chemical for its groundless accusation of SKI, and a compensation of 1 billion won from LG Chemical.

The person in charge of SKI said: "at present, the baseless accusations against SKI in LG chemistry have reached an unbearable level, so SKI has to respond forcefully." It also said, "if through an internal investigation, it is found that the damage caused by LG chemical baseless accusations is greater than 1 billion won, the amount of compensation claimed will be raised."

SKI also denied LG Chemical's allegations, saying that these people were hired through normal open recruitment channels, and that LG was different from SKI's main technology and products, so there was no need to steal core technology.

In the following October, LG Chemistry won an initial victory after eight confrontations between LG Chemistry and SKI. ITC made a default decision in favor of LG Chemistry, but this is not the final result.

On December 10, 2020, ITC announced that the investigation would be extended to February 10, 2021.

However, according to Bert C. Reiser, a lawyer for LG Energy, the delay is routine because the agency has had 50 investigations postponed since March.

According to LG Chemical's recent response, the default decision was made in its favor because ITC Administrative Judge Cameron Elliot found that the "vast majority" of records showed that SKI had destroyed "evidence relevant to the problem under investigation". The aim is to hide evidence of embezzlement of trade secrets.

The judge also found that SKI deliberately disobeyed its order: SKI investigated the scope of its evidence and partially remedied its destruction. Based on these findings, the administrative judge approved LG Chemical's motion, finding SKI in breach of contract, and held that SKI waived its right to "dispute the contentious allegations under investigation".

From the point of view of people in the industry, on the surface, it seems that there is a dispute over talent and intellectual property rights, but behind it is the competition for customer resources.

In 2018, SKI beat LG Chemistry, its predecessor in the battery industry, to win an order worth more than a billion dollars from Volkswagen.

Then SKI built a plant in the United States with great fanfare: in March 2019, SKI invested $1.7 billion to break ground on a new power battery plant in Jackson County, Georgia, and plans to start production in 2022.

These actions are bound to infuriate LG Chemistry.

From a timeline point of view, LG Chemical is indeed very likely to take SKI to court because of Volkswagen's order.

And in the LG Chemical charge, SKI will reap more than $1 billion in improper benefits by stealing its core technology.

This should imply that Volkswagen orders.

This is not the first time LG Chemistry has sued SKI.

As early as 2017, LG Chemical filed a lawsuit against SKI in South Korea because SKI was "poaching": LG Chemical asked the court to support it in restricting the departure of five core R & D staff. South Korea's Supreme Court finally upheld LG Chemical's request and ordered five people not to leave office for the next two years.

More than a year later, LG Chemistry sued SKI again.

From the point of view of LG Chemistry, SKI has been on the market for a short time and has been able to grow rapidly because it has poached many of its R & D staff and acquired its core technology in the past two years.

It is worth noting that once it is ruled against SKI this time, its cells, modules and related parts will no longer be exported to the United States. This part of the order is likely to be "taken back" by LG Chemistry in the end.

5. Backyard fire: two recalls

Before I finished tidying up my little brother in the front yard of LG Chemistry, there was a fire in the backyard.

With two car recalls and one energy storage recall, LG Chemistry has once again been pushed to the forefront of the storm.

(1) Hyundai recalled 77000 vehicles worldwide in October 2020

Hyundai said there were 13 unexplained battery fires when the car was parked. The burning cars used battery cells made by LG Chemical in Nanjing, China. To this end, Hyundai Motor will recall nearly 77000 KONA EV vehicles worldwide.

According to the latest news, 200 car owners have sued Hyundai Motor.

LG Chemical denied that the battery fire was caused by its battery, but Hyundai has gradually reduced its reliance on LG chemical batteries, according to South Korean business reports.

South Korean science and technology news agency The Elec, quoted sources as saying that, SK Innovation could become the preferred battery supplier for Hyundai after the Kona battery fire recall.

(2) GM recalled 69000 vehicles in November

After seeing Hyundai's massive recall, the National Highway Traffic Safety Administration seems to have realized something and launched an investigation into the fire of GM's Chevrolet Bolt EV battery, which involved nearly 78000 Bolt EV made between 2017 and 2020.

On November 13, 2020, General Motors announced a worldwide recall of 69000 Bolt electric vehicles made in 2017-2019. At present, there have been at least five fire accidents around the world.

As for the cause of the recall, GM said the recalled vehicles were equipped with batteries made by LG Chemical in South Korea, which are in danger of catching fire when they are fully charged or about to be fully charged.

A spokesman for LG Chemical said it was cooperating with GM's investigation.

(3) LG household energy storage battery also has some problems.

From August 2017 to October 2019, there have been 27 fire accidents in energy storage systems in South Korea, of which 17 have been equipped with lithium-ion batteries produced by LG Chemistry. This means that the fire rate of the energy storage system equipped with LG chemical batteries is an astonishing 63%. Nine other energy storage system fires involved Samsung SDI batteries.

Recently, South Korea released the results of an investigation into five energy storage battery accidents from August to October 2019, and the investigation committee believes that four of the five accidents were caused by battery defects. Three of these energy storage systems used LG chemical batteries.

According to South Korean media reports, LG Chemical is said to have decided to recall all energy storage systems made in China based on the results of an investigation by the Ministry of Industry, and batteries made in energy storage systems made in South Korea have not been found to be defective.

From the results of the investigation, there may be quality problems in the household energy storage battery of LG chemistry, which leads to the safety hidden danger of the energy storage system.

6. Battery business obtains independent legal personality

LG chemical battery business is growing fast, but it was only 10 years ago that it began to achieve "structural profits" in the second quarter of this year, and successive recalls have also had a negative impact on profit expectations.

LG Chemistry is also overwhelmed by its long-term investment in the battery business.

Xin Xuezhe, Vice President of LG Chemistry, explained the situation on the day of the shareholders' meeting: "over the past 25 years, LG Chemical has won more than 150 trillion won (about 883.69 billion yuan) orders for (EV) batteries for electric vehicles through leading battery research and development. Although it maintains its position as a global leader, with the intensification of competition, pressures and challenges such as the financial structure burden brought about by expanding equipment investment should not be underestimated. "

At present, LG Chemical's electric vehicle battery business is growing rapidly, but at the same time, it needs to raise more than 3 trillion won (about 17.67 billion yuan) in equipment investment costs each year, which also brings a huge financial burden for the company.

As a result of increased investment in equipment in electric vehicle battery factories, LG Chemical's net borrowing has increased to 8 trillion won (about 47.1 billion yuan), with a debt ratio of more than 100 percent.

In addition, through the financial statements, we can also see that the chemical pressure of LG is huge. In 2019, the company reported revenue of 28.6 trillion won (168.2 billion yuan), up 2% from a year earlier, and operating profit of 895.6 billion won (5.27 billion yuan), down 60% from a year earlier. This is mainly because the company spent about 320 billion won (1.88 billion yuan) on propping up its ailing battery business. The company's net loss should be attributed to the one-time expenses related to safety measures after a series of fires in the energy storage system.

It is conceivable that the introduction of external investment in the battery business is probably the most urgent desire of LG Chemistry.

LG Chemical also expressed the hope that through this spin-off, to achieve the intention of the initial public offering (IPO).

However, as for the listing time, Xin Xuezhe said: "there is no specific decision at present, and we will continue to study it in the future."

LG Chemical said that by dividing the business in the form of a 100% subsidiary of LG Chemical, it could raise money in a variety of ways, even if it was not listed on the stock market.

It can be seen that getting rid of the burden is the fundamental reason for LG's chemical independent battery business.

At the end of 2019, there was news of LG's chemical divestiture of the battery business. In a regulatory filing in December 2019, LG Chemical said it was looking for ways to make its battery business more competitive. Its rival is the Ningde era, which is also a supplier of Tesla batteries.

However, due to the impact of novel coronavirus's epidemic situation, the divestiture plan of LG Chemical had to be suspended. In March last year, it was also revealed that the spin-off plan of LG Chemical's battery business had been postponed indefinitely, and that the "TF" working group responsible for the divestiture of the battery division had also been disbanded.

Perhaps the increase in battery sales in the first half of last year boosted LG's confidence in the chemical spin-off of the battery business, and half a year later, the battery business split was brought up again.

On September 17, 2020, LG Chemical held a board meeting and adopted a resolution to split its power battery business. According to the plan, the company will spin off its car battery business in December and set up a new company.

On October 30th last year, LG Chemical held a shareholders' meeting at the East Pavilion of the LG Twin Towers in Yoido, Seoul, and the separation plan for part of the LG chemical battery industry has been formally approved.

Of course, it is also a good thing for LG new energy, independent legal persons can respond to market changes more quickly, while improving management and operational efficiency.

After independence, LG new energy still belongs to LG chemistry. LG Chemistry itself consists of three divisions, Petrochemical, Advanced Materials and Life Sciences, and two subsidiaries: LG Energy Solutions and Hannon Farm.

In parallel with the spin-off, a team around Kim Jong Hyun (Kim Jong Hyun), president of LG New Energy, is working on another project: LG plans to more than double the production capacity of its batteries for Tesla. LG Chemical will increase the annual production capacity of 21700 batteries by 8GWh at the Nanjing plant.

LG Chemical also has clear expectations for the new company, hoping to achieve sales of 30 trillion won (US $26 billion) by 2024 and become the best battery-based energy solution company in the world. The new company's expected revenue in 2020 is about 13 trillion won.

Recently, new progress has been made in the independent listing process of LG new energy. According to sources, LG Energy Solutions will complete its first IPO, by the end of this year or early next year. According to estimates, its market capitalization will reach 100 trillion won (592.46 billion yuan) after listing.

It took LG Chemistry more than 20 years to build the lithium-ion battery business from scratch. LG New Energy, which has become an independent legal person, will face more storms alone in the future.