Tesla Battery Day to provide momentum for LG Chem

Tesla CEO Elon Musk speaks during an unveiling event for The Boring Company's test tunnel in Hawthorne, California, Dec. 18, 2018. AFP-Yonhap

By Nam Hyun-woo

LG Chem is expected to enjoy stronger momentum in its electric vehicle (EV) battery business, as Tesla CEO Elon Musk expressed his intention to increase supplies from LG Chem, just a day before Tesla's much-touted Battery Day event.

LG Chem's share price has been on a downturn in recent sessions due to investors' concerns over the company's announcement to spin off its battery business, coupled with predictions that Tesla would announce plans to manufacture batteries on its own and introduce cheaper and stronger batteries during the event.

As Musk hinted at plans to increase supply from LG Chem, industry officials and analysts said the company is defying short-term worries and will likely enhance its competitiveness with new batteries which will go into mass production next year.

“We intend to increase, not reduce, battery cell purchase from Panasonic, LG & CATL (possibly other partners too),” Musk tweeted on Tuesday (Korea Standard Time). “However, even with our cell suppliers going at maximum speed, we still foresee significant shortages in 2022 & beyond unless we also take action ourselves.”

The tweet is interpreted as a teaser to Tesla's highly anticipated Battery Day, which will be streamed online at 5:30 a.m., Wednesday. The event has been drawing keen attention among investors and battery makers as the company is anticipated to reveal new battery technologies and make several other announcements that could cause a stir in the EV battery industry.

Industry watchers have been assuming the new battery ― dubbed a “million-mile battery” ― will be a cobalt-free battery, which can lower the cost of battery cells by a significant amount while boosting efficiency. In developing this, there was also speculation that Tesla will have a stronger partnership with CATL, which is closing in on LG Chem for the top spot in the global EV battery market.

Along with the new battery, Tesla is expected to reveal more details on its plan to manufacture batteries by itself, which will trigger changes in the current supply structure of the company.

Due to this, Battery Day was anticipated to hurt the share prices of LG Chem and other Korean EV battery makers.

Along with the event, LG Chem's recent decision to spin off its battery business triggered concerns among domestic investors as they fear the company is losing its most lucrative businesses. The company's share price has dived 13.64 percent to 627,000 won on Monday from 726,000 won on Sept. 15. Its spinoff decision first became public on Sept. 16.

With Musk calming investors with the tweet, however, LG Chem's share price rebounded 1.91 percent to close at 639,000 won on Tuesday.

“From LG Chem's perspective, the initial concern was Tesla's strong intention to produce batteries by itself,” a battery industry official said. “Tesla seems to be maintaining this idea given Musk's tweet, but at the same time it said it will increase supply from LG Chem and other battery makers. This means the company wants to have multiple suppliers, thus the impact on LG Chem's supply to Tesla will be limited in the short term.”

A Tesla supercharger is shown at a charging station in Santa Clarita, Calif., Oct. 2, 2019. Reuters-Yonhap

Due to this, industry officials say the battle between LG Chem and CATL over advanced battery technologies will be the key point in foreseeing the global EV battery market.

Korean battery makers assume the new battery to be disclosed in the Battery Day event will be based on lithium iron phosphate (LFP) chemistry and add manganese to increase the energy density of the cell. This, known as an LFMP battery, will be slightly more expensive than LFP batteries, but still cheaper than nickel cobalt manganese (NCM) batteries, which are produced by LG Chem. Reportedly, CATL is making efforts to mass produce LFMP batteries and Tesla is also paying keen attention to this.

To cope with cost competitiveness of LFMP, LG Chem is striving to mass produce NCMA battery in the second half. NCMA battery adds aluminum to NCM chemistry to lower costs by reducing cobalt use. Aluminum is priced at around $1,500 per ton, while cobalt is priced at over $30,000 per ton.

This means CATL is striving to improve LFP batteries' efficiency while LG Chem is attempting to lower the costs of its NCM batteries, by adding new materials to their existing chemistry.

Analysts said this battle should be viewed from a long-term perspective, but LG Chem appears to be having a lead in the short-term.

“Investors should take a long-term perspective in predicting the timeframe of LFP batteries reaching a level to compete against LG Chem's NCM batteries in terms of price and energy efficiency,” Kyobo Securities analyst Kim Jung-hyun said.