GM in final stage of 3rd US battery plant agreement with LGES

GM Chair and CEO Marry Bara, left, and LGES CEO Kwon Young-soo / Korea Times file

By Kim Yoo-chul

General Motors (GM) is in the last stage of finalizing key outstanding issues regarding its planned and scheduled investments in two electric vehicle(EV)-related manufacturing facilities in the U.S. state of Michigan ― one with its Korean partner LG Energy Solution (LGES), two local investment banking sources told The Korea Times, Sunday.

"It's totally GM's call. Yes, GM is in the last stage of finalizing all specifics regarding the construction of its new battery plant near the city of Lansing in the state of Michigan. Both GM and LGES will have an equal stake in the soon-to-be-announced battery joint venture (JV), as each one of them is set to invest $1 billion, which means that the total amount of the spending will reach $2 billion, initially, in the forthcoming project," one of the sources said by telephone.

Several key factors ― such as the extent of tax breaks, talent pool and the extended duration of an amendment to tax-sharing affecting existing and new GM plants ― will influence the new decision, the conditions of which still need to be fine-tuned, according to the source.

The question is how and when to announce its multi-billion-dollar investment plan. Sources familiar with the issue said that GM Chair and CEO Mary Barra could specify the relevant details of the plan at January's Consumer Electronics Show (CES), to be held in the desert city of Las Vegas.

The core reasoning behind this expectation is that Barra will return in-person to the keynote stage during the upcoming Las Vegas technology fair. At the event, she is expected to highlight the company's commitment to move forward with zero crashes, zero emissions and its shift toward electrification.

Thus, GM's partnership with LGES holds great importance, because any decision could encourage the continued adoption of EVs and electrification with the help of its Korean business partner. GM already operates a JV with LGES in Ohio, with the two entities in the process of constructing their second battery plant in Tennessee.

"GM's scheduled additional investment plan is mandated to receive approvals from Lansing city and Delta Township, as most financial incentives are closely related to the electricity charges, water and labor supply for the proposed plant. But no major hurdles are expected in terms of hampering its cash-intensive plan," said another source in the local investment banking industry.

Safety issues and LGES's IPO

Now, from LGES's standpoint, securing financing for another battery manufacturing plant is how it will win back the trust of investors at its initial public offering (IPO), slated for late January of next year.

A Chevrolet Suburban is displayed for sale at a Chevrolet dealership, Aug. 4, in Glendale, California. AFP-Yonhap

Despite its recent settlement with GM over faulty battery packs and modules managed by LGES and LG Electronics, which cost the two LG affiliates a lot, investors were still concerned over the safety of LG-manufactured batteries. After a brief halt in production due to these issues, LGES resumed production of batteries for use in GM's line of vehicles in September, with GM in charge of handling the programs for enhancing battery quality for greater consumer confidence moving forward.

A senior fund manager at a Europe-based investment bank in Seoul, who invested millions of dollars in LGES, said the company is tasked with ending its planned IPO as a "huge success" so as to soothe investors' concerns regarding the future course of battery safety.

"If LGES raises more than 12.5 trillion won in its January KOSPI listing, then that will provide the company with a second chance to rise as the world's most trusted battery supplier and help it move forward with automakers other than GM for battery JVs," the manager said by telephone, asking not to be named, as he wasn't officially authorized to speak to the media.

LGES was expecting to raise up to 12.8 trillion won from the IPO as its preferred stock sale price per ordinary share (ORD) has been set between 257,000 won and 300,000 won. The value currently varies from 60 trillion won and 70.2 trillion won, making it the country's third most valuable after tech heavyweight Samsung and SK hynix.

Its CEO, Kwon Young-soo, who played a significant role in helping LG Display win 1 trillion won in investment support from Holland-based Philips when he was the chief executive at the world's top-tier display maker, has been sent to lead the group's battery unit by Chairman Koo Kwang-mo, in the wake of various growing uncertainties at the time of its blockbuster IPO.

"LGES will respond to the demand for secondary batteries, the market of which is expected to see a rapid growth trajectory, both thoroughly and pre-emptively, through the planned IPO," Vice Chairman and CEO Kwon said. It has battery manufacturing facilities in Poland, China, Indonesia, Korea and the United States. LGES is also in "advanced talks" with the Ontario regional government in Canada to build another battery plant there, as it recently signed a preliminary JV agreement with Stellantis.