By Kim Yoo-chul
Staff reporter
The LG Group of companies, which has been relying heavily on its consumer electronics and mobile-phones businesses, seems to experiencing a shakeup.
And an emerging young gun is its chemical specialist, LG Chem, which appears to have a shot at establishing global leadership in the rapidly growing market for electric and hybrid-electric vehicle batteries.
The groundbreaking ceremony at the Compact Power, a Michigan, U.S-based battery plant, which is a subsidiary of LG Chem, represented a landmark moment for the company in that aspires to be the leading name in rechargeable batteries, although it currently trails Japan's Sanyo and is neck-to-neck with domestic rival, Samsung SDI.
"The U.S. government picking us to build the Holland battery plant and granting us huge incentives show that we have established a reputation for quality and innovation in batteries for electric and hybrid-electric vehicles," Kim Bahn-suk, chief executive of LG Chem, told reporters in a news conference after the groundbreaking ceremony.
"We are relatively a late arrival in the rechargeable battery business, but our aggressive investment in research and development (R&D) is beginning to pay off. The rechargeable battery business had been led by electronics companies, but chemical companies like us are taking a stronger hold on the driving wheel, and we have been gaining trust from carmakers around the world for our quality in base materials for batteries."
Asian companies currently own more than 95 percent of the global rechargeable batteries market, with Sanyo leading the sector with a 20 percent market share.
LG Chem aims to match that 20 percent market share in 2015, when it hopes to generate more than 2 trillion won (about $1.64 billion) in revenue from the business, and a significant chunk of the growth is expected to come from lithium-ion battery cells provided for next-generation, low-emission cars.
The battery plant will start production in 2012 and be providing batteries to more than 60,000 cars by the following year, including General Motor's Chevrolet Volt and Ford Motor Focus electric vehicles, LG Chem representatives said.
So far, LG Chem has inked deals with seven major carmakers to provide batteries for their future electronic and plug-in hybrid-electric vehicles, a list that also includes Hyundai Motor, Kia Motors, Volvo and Changan Auto.
It remains to be seen whether LG Chem's commitment to car batteries will yield the desired results.
Although electric and hybrid-electric vehicles are backed by the economic stimulus policies and green-tech initiatives of many countries, including Korea and the U.S., some industry watchers wonder whether the auto industry is shoving these new breed of cars to consumers when they aren't ready for it.
Battery companies and other parts manufacturers for electric cars might thus find themselves in an awkward situation when their manufacturing capacity dramatically outstrips consumer demand, according to critics.
The auto industry has yet to see its first real wave of electric car products, while the acceptance of hybrid-electric vehicles, which began to appear a few years ago, had been disappointing, with the lack of charging stations and other necessities discouraging drivers from taking a leap of faith.
Such skepticism isn't preventing LG Chem from betting heavily on car batteries, as it wouldn’t risk coming half-way when the clean-car market indeed explodes in the way policymakers are hopefully predicting.
LG Chem nearly didn’t have a future in batteries.
In 2001, some key LG executives urged group Chairman Koo Bon-moo to bail from the rechargeable batteries business after early returns were weak. Koo resisted the calls and instead increased R&D spending on batteries.
Koo's persistence seems to have paid off ― LG Chem's total market value is now the fifth-largest in Korean Inc., far larger than LG’s key electronics units, LG Electronics and LG Display.
"Some high-ranking decision makers at the LG Group didn't share Koo's vision in the battery business. Now, with LG Electronics struggling and flat-screens being a volatile market, LG Chem could end up being the savior for LG," said a senior group executive.
Koo asserts that green-technology will continue to be a crucial part of the conglomerate’s business future.
LG’s "Green Way" initiative announced earlier this year has the group getting 15 percent of its sales from businesses related to clean energy technologies by 2020.
Solar cells, batteries, light-emitting diodes and other areas were targeted in the plans.
According to LG Chem CEO Kim, the company will generate 1 trillion in sales from its car batteries business by 2013, as it continues to find lively interest from automakers around the world.
A crucial market will be the U.S., with the Obama administration forecasting that the cost for batteries for electric cars will drop as much as 70 percent over the next five years, making the futuristic, low-emission cars more affordable.
Kim said he expects a 50-percent-drop in battery prices by 2015.