LG, Hyundai to build joint battery plant in Indonesia

A Tesla Model X electric vehicle is shown in Moscow, Russia. in this July 23 file photo. Reuters-Yonhap

By Baek Byung-yeul, Kim Yoo-chul

LG Chem is in final discussions with Hyundai Motor Group over the launch of an electric vehicle (EV) battery plant in Indonesia after the government there approved of the project, two sources involved in the issue said Monday.

"LG Chem is close to announcing its plan to build the EV battery plant in which Hyundai will have a sizable stake. General terms of have been agreed upon, but some details need to be fine-tuned before an official announcement," a senior industry executive said.

The investment will be "substantial" as Jakarta has guaranteed preferential tax treatment for startups. The Southeast Asian country plans to grant both LG Chem and Hyundai tax exemptions on imported construction materials for at least seven years.

"Both LG Chem and Hyundai Motor also requested preferential customs procedure treatment, which has also been approved," said the executive.

Because the planned investment is "not small," the Korean tech firm has reportedly received other financial incentives such as a "fixed-rate" corporate income tax (CIT) and a possible exemption for a certain period.

The establishment of the joint venture will provide a fresh impetus for Indonesia, which President Moon Jae-in praised as playing a leading role in Cheong Wa Dae's New Southern Policy initiatives, as Hyundai plans to expand output at its manufacturing plants there over the next few years.

"Given Hyundai's agreement to build EV factories in Cikarang, Bekasi and West Java, it's no surprise to see the joint venture with LG Chem as the automaker needs to procure battery cells and packs on a turnkey basis from a reliable supplier. LG also has a pretty strong corporate image in Indonesia, the largest economy in Southeast Asia, and also demand to replace outdated fossil fuel Japanese vehicles is rising. That means Hyundai could successfully fill the void steadily with the help of LG," another source said.

Indonesia is seeking to build an EV ecosystem. In terms of geographic location, the Southeast Asian country is well-positioned for Hyundai to expand its sales channels to Australia and other countries in the region using competitive Indonesian labor, which is also good for the country's economy.

LG Chem, which supplies batteries to almost all major carmakers including Tesla, General Motors and Ford, said it will spin off its EV battery business in December this year. It said the new unit will go public, although the timing of a planned initial public offering has yet to be fixed.

The company said the decision to spin off the battery unit was due to the latter's need to secure massive investments for its expansion plans. LG's global EV battery market share jumped from just under 11 percent last year to more than 25 percent in July this year, putting it ahead of chief rivals CATL of China and Panasonic of Japan.

LG Chem operates manufacturing plants in Korea, Poland and the United States and is building an additional plant in Ohio to supply batteries to GM.

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