LG Chem wins big deal with Renault

By Kim Yoo-chul

LG Chem said Thursday that it has signed an agreement with Renault to supply lithium batteries for the French auto manufacturer's upcoming electric vehicles, which the company said will be its biggest deal in the battery business.

Under a multi-year contract, the LG Group's chemical component-making affiliate will ship the batteries for Renault's EVs, which are expected to be marketed from mid-2011.

"Considering the expected production volume of Renault's EVs, the latest deal will be the largest that LG Chem has inked with automakers so far," said Song Choong-sup, a senior company spokesman.

Song, however, declined to comment on further financial details, but industry sources estimated that the contract is valued at a minimum of $1.8 billion over five years.

A representative of Renault's Korean branch also declined to give any specific numbers, citing the sensitivity of the issue.

The deal is forecast to help LG Chem ensure further business stability in its battery unit after securing major U.S. and European carmakers as key clients for its lithium batteries.

LG Chem has been in a cutthroat competition with its Japanese peers and Samsung SDI to garner more market share in the global market.

The company is now reviewing a plan to build additional battery-manufacturing facilities in Europe or the U.S. to actively respond to the rising demand from existing and future clients, Song said.

Renault is planning to produce 500,000 EVs in Europe, LG said in a statement.

``We are looking into details concerning the establishment of more battery facilities but it’s too premature to discuss,’’ according to the spokesman.

LG has a plant in Holland, Michigan, the United States, to supply batteries for General Motors’ Chevrolet Volt, in addition to Ford. Months ago, U.S. President Barack Obama paid a rare visit to the plant.

Chief executive Kim Bahn-suk was quoted as saying in the statement that LG Chem has revised up its sales target for its battery business to over 3 trillion won by 2015 from an earlier target of 1 trillion won, after the company successfully secured a number of deals.

``LG will solidify our leading position in lithium batteries by expanding distribution channels and investing more on facilities and R&D,’’ the vice chairman was quoted as saying.

More deals

Song said the company has been in talks with other leading carmakers and added two or three additional announcements will come within this year.

So far, LG has announced eight battery deals including ones with Hyundai-Kia Motors, General Motors, Ford and Volvo.

Although the market for EVs is in its experimental phases due to limited consumer interest because of the higher initial cost of the vehicle and its restricted range, auto majors are implementing full commercialization of EVs to take ``first-mover’’ advantage in the next-generation car market.

Governments are giving more incentives amid green initiatives and the alliances between automotive makers and battery manufacturers are expanding.

``LG Chem’s shares are expected to continue a bullish run as the company has yielded visible results consistently,’’ said Daishin Securities analyst Ahn Sang-hee. Its shares rose 0.15 percent to end at 333,500 won, Thursday.

Ahn, which presented 450,000 won as the local brokerage’s target, added LG has been in very near to announce the deals with Mitsubishi of Japan-Peugeot of France partner.

Separately, ICIS Chemical Business magazine named LG as the ICIS Company of the Year, referring to continued corporate growth both in sales and profits.