Baek Byung-yeul is a journalist at The Korea Times focused on cultural content, including films and cultural events in South Korea. You can contact him at baekby@koreatimes.co.kr to share your insights.
LG undergoing fundamental changes, riding on EV momentum
LG Group Chairman Koo Kwang-mo, right, inspects the design of a clothing storage unit set up inside a connected car model at LG Electronics' research and development center in Seoul, Feb. 18. / Courtesy of LG Corp.
By Baek Byung-yeul
By Baek Byung-yeul
LG Group is undergoing fundamental changes in its business operations as its affiliates have been riding on the back of the rapidly growing electric vehicle (EV) industry. Though LG has been broadly known as a consumer goods manufacturing business group, the conglomerate is now transforming itself into a core partner in the global EV supply chain, industry officials and analysts said Monday.
The conglomerate has been actively expanding into the EV industry, with its core affiliate LG Chem's EV battery business unit becoming the global top EV battery supplier this year.
To further solidify its industry leadership, LG Chem decided to spin off the battery unit, officially launching its wholly owned subsidiary LG Energy Solution on Dec. 1. The newly established company has set an ambitious sales goal of achieving 30 trillion won ($27.4 billion) by 2024.
In addition to the strong performance of LG Energy Solution, LG Group has continued to lay out its future vision in the EV business as LG Electronics, one of the group's crown jewels, announced on Dec. 23 to set up a joint venture with Canada-based vehicle parts maker Magna International for producing EV components.
In a statement, LG said the new entity, tentatively named LG Magna e-Powertrain, will be launched in July, and LG will own 51 percent of the $1 billion-invested company. Headquartered in Incheon, west of Seoul, the company will manufacture e-motors, inverters and onboard chargers.
Given Magna had been engaged in U.S. tech behemoth Apple's EV-making tasks called Project Titan, LG Electronics shares soared by its 30 percent daily limit-up that day because investors anticipated the joint venture could potentially supply components to Apple's EVs. The iPhone maker announced recently that it plans to roll out its first EV in 2024.
The agreement clearly shows LG is shifting from a manufacturer of digital and consumer devices to a “serious” EV parts supplier at a time when the global tech industry has begun to focus on EVs and related supply chains.
Industry analysts said the joint venture also has re-evaluated other affiliates of LG Group such as LG Innotek, which produces circuit components and camera modules for IT devices, and display-making unit LG Display.
They analyzed that LG Group's decades-long partnership with major tech firms is raising the possibility that its affiliates could also supply their components to Apple and other EV makers, helping them diversify their business portfolios.
LG Group Chairman Koo Kwang-mo, right, looks at an EV battery model under development at LG Chem's research center in Daejeon, in this Aug. 29 file photo. / Courtesy of LG Chem
With the group experiencing fundamental changes, LG's leader Chairman Koo Kwang-mo stressed on Dec. 28 that its affiliates are urged to put three key values ― quality, environment and safety ― at the top of the group's operation agenda.
"Let each of the members of the group work with a sense of responsibility that LG products are those used by my family members and LG is where my family members work," Koo was quoted as saying at the meeting in a press release by the group.
“During a recent video conference with senior executives of the group, the chairman suggested its affiliates are required to make these values the first priority in their operations,” the group said. Koo's call is in line with the group's move, which will actively turn its attention to the eco-friendly EV industry.
With the agreement to establish the EV powertrain joint venture, LG Electronics' vehicle-related business will have three business sectors ― in-vehicle infotainment systems, automotive lighting and EV powertrains.
LG Electronics has been working closely with U.S. auto giant General Motors, supplying its EV components, but the company has sought to secure more customers to expand into the vehicle component business.
With the joint venture, analysts said LG finally succeeded to gain a foothold in the European EV market given Magna is producing Jaguar's I-Pace EVs at its contract-based manufacturing facility in Austria.
“The expected synergy effect by establishing the joint venture is LG Electronics could secure new customers, utilizing Magna's business network in Europe's EV market. The company also can absorb Magna's technological capabilities such as designing EV powertrains and lessen the burden of investment,” SK Securities analyst Lee Dong-joo said.
Another analyst said the joint venture will certainly have a positive impact not only on LG Electronics but also on LG Corp, the holding company of the group, as he thinks it is not coincidental that the Korean company announced the deal right after Apple's remark on its EV-making project.
“The formation of the LG Magna E-Powertrain joint venture certainly appears to have a positive impact on the shares of LG Electronics (common stock), LG Electronics (preferred stock) and LG Corp. Among these, LG Electronics (preferred stock) appears to have the strongest momentum as investors attempt to reduce the price gap between the common and preferred shares,” said Douglas Kim, an analyst at Smartkarma.
“Although it is too early to tell whether LG Magna E-Powertrain will become a major supplier to Apple's EV business, the timing of this joint venture formation comes only a few days after Apple has renewed its efforts to expand aggressively into the EV business. This is probably not just a coincidence since Apple probably has been discussing with numerous major EV component companies about how they could potentially become important suppliers to Apple in the EV business.”
LG Innotek, a consolidated subsidiary company of LG Electronics, is also forecasted to diversify its business portfolio thanks to the LG-Magna joint venture. Industry officials said chances are likely that LG Innotek, which has supplied camera modules to Apple, would also seize an opportunity to become a camera module supplier for the U.S. company's EVs.
“It is too early to comment on the future move, but LG Innotek is likely to be boosted if the joint venture between LG Electronics and Magna International could join Apple's EV-making project,” an IT industry official said.
“The investment point of LG Innotek won't be whether Apple sells more iPhones anymore,” said Ju Min-woo, an analyst at Meritz Securities. “Investors are urged to pay attention to LG Innotek's business portfolio changing. Of its operating profit, the portion from iPhone is expected to decrease to 52 percent in 2022, from 73 percent in 2020 and 61 percent in 2021. Meanwhile, its electronic materials business and vehicle components business are forecasted to be boosted.”