LGES to set up battery joint venture with Hyundai Motor
Hyundai Mobis President Cho Sung-hwan, left, holds up an agreement with LG Energy Solution (LGES) President Kim Jong-hyun, after signing a deal with Indonesian officials to invest in a battery joint venture in the Southeast Asian country, at LGES's headquarters in Seoul, Wednesday. On the left screen is Indonesian Minister of Investment Bahlil Lahadalia and on the right screen is Indonesia Battery Corporation CEO Toto Nugroho. Courtesy of LGES
Jakarta grants LGES, HMG with tax-exempt status and agrees to give each other benefits of lower tariffs
By Kim Yoo-chul
LG Energy Solution (LGES), one of the world's largest electric vehicle battery manufacturers, has teamed up with Hyundai Motor Group (HMG) to establish a 50:50 battery joint venture in Indonesia, the two companies said Thursday.
The joint venture will have an initial investment capital of around 1.17 trillion won (approximately $1.1 billion) with actual battery production scheduled to start within the first half of 2024.
The factory will be built in Karawang Regency, west Java. The regency is considered as one of the leading industrial cities in the Southeast Asian country. Some 1,760 manufacturing facilities, including at least 600 factories operated by multinational companies, are located in the regency. When it comes to transportation infrastructure, an integral part of foreign direct investment (FDI), the regency is viewed as an ideal fit in terms of the connection between ports, airports and highways.
Once construction is completed, the factory will have an annual battery manufacturing capacity of 10 gigawatts per hour (GWh), enough to equip 150,000 EVs, LGES said in a statement.
LGES aims to manufacture NCMA lithium-ion battery cells for use in Hyundai Motor and affiliate Kia's E-GMP automotive EV platform, officials said.
“Thursday's announcement will help Hyundai Motor and Kia take stronger steps for EV sales in the Asia-Pacific region,” Hyundai Motor said in a separate statement.
The Indonesian government granted LGES and HMG with tax-exempt status for a “certain period” and agreed to give each other the benefits of lower tariffs.
Since last year, the two Korean conglomerates have been exploring the best possible chances to expand their battery cooperation. LG Chairman Koo Kwang-mo briefed LGES's battery manufacturing lines in South Korea to HMG Chairman Chung Euisun who visited the facility in June of last year.
During the visit, the two business tycoons discussed the specifics of the development and path of various types of long-lasting batteries. LGES is the primary supplier of lithium-ion batteries for HMG's E-GMP EV platform, which will be commercially available from next year.
Growing market, tax breaks for hybrid EVs
Indonesia is aggressively promoting the domestic development of EVs and battery production aimed at creating a downstream industry for the country's abundant supply of nickel and laterite ore, which are used to make lithium-ion batteries.
Hyundai Motor Chairman Chung Euisun, left, shakes hands with LG Chairman Koo Kwang-mo at LG Energy Solution's electric vehicle battery plant in Ochang, North Chungcheong Province, June 22, 2020. Courtesy of Hyundai Motor
But more importantly, the establishment of the battery joint venture comes as Indonesia, a top supplier of key battery metals, is aiming to boost sales of EVs with a new regulation that will reduce tax breaks for “hybrid EVs.”
Battery-powered EVs have been set to retain their zero percent luxury tax rate, while plug-in hybrid EVs will see their tariff increase to 5 percent from zero percent, according to Indonesian government officials. Also, full- and mild-rated hybrid EVs could be taxed at a rate of 6 percent to 12 percent, compared to a previous range of 2 percent to 12 percent.
“Because the new rates will apply only to locally-produced vehicles, with the help of LGES, Hyundai and affiliate Kia will be positioned to grab a bigger share of the Indonesian EV market, currently dominated by Japanese carmakers. LGES and HMG are betting on pure EV,” a senior trade ministry official in Seoul, said.
Jakarta has recently set a goal for EVs to make up 20 percent of all domestic vehicles manufactured, equal to around 400,000 EVs, by 2025. Also, it aims to have e-motorbikes make up 20 percent of the total domestic motorbike production volume. On the back of the Indonesian government's series of policy measures to support its EV expansion plan, both LGES and HMG plan to wait until full-fledged EVs reach a point of mass usage, said officials.
From HMG's standpoint, the venture will help it save cost and logistics time and avoid any worries for sourcing materials. By scaling up the production of pure EVs, HMG plans to receive more incentives and benefits from the Indonesian government, which could set a crucial precedent before expanding to other ASEAN bloc countries.
In the meantime, Hyundai Mobis, HMG's automotive parts manufacturer and de-facto holding company, will play a central role in managing the operation of the joint venture.