While the COVID-19 pandemic has dented demand for electric vehicles this year, a South Korean supplier expects its battery sales to reach a new high thanks to strength in Europe and a contract with Tesla's factory in China.
Revenue at LG Chem's battery business will reach a record of about 13 trillion won ($11 billion) this year, before hitting 30 trillion won in 2025, CEO Hak Cheol Shin said in an interview at his office in Seoul.
"We have no problem in our supply chain and can deliver all of the orders from customers this year despite the coronavirus," Shin said.
Even with demand for rechargeable batteries expected to slump for the first time ever in 2020, South Korean makers posted sales gains in the first half. They particularly benefited from European governments using virus recovery funds to help boost EV sales as well as new models from automakers including Volkswagen Group, according to SNE Research.
Sales at LG Chem jumped 83 percent to 10.5 gigawatt hours, lifted by rising demand for Tesla's Model 3 sedans in China as well as for Renault's Zoe small car, SNE Research said. That helped LG Chem, whose stock has more than doubled this year to a record high market value of about $44 billion, take the market lead over China's Contemporary Amperex Technology Co. Ltd., or CATL.
"The point is how much LG will be able to get orders from Tesla, because everyone agrees Tesla will lead the electric-car market," said Hwang Kyu-Won, an analyst at Yuanta Securities Korea. "However, if other automakers catch up with Tesla, that might be good news for LG Chem too, because of its diversified customers."
LG Chem expects battery revenue to double by 2025
Tesla has also been using lithium-ion batteries made by No. 3 maker Panasonic at the Shanghai plant, which began production late last year.
CATL recently struck a deal to supply the same factory, wooing Elon Musk with packs that BloombergNEF says cost about 20 percent less than rival products.
LG Chem's products use lithium nickel manganese cobalt (NMC) oxides, offering high energy density, which makes them more expensive but longer lasting. CATL uses lithium iron phosphate (LFP), which is cheaper and provides lower density.
While LFP batteries may be "good enough" for a driving range of less than 300 kilometers (186 miles), NMC is likely to win out longer term as it should be able to lower costs while increasing density at a faster rate, according to Mark Newman, a senior analyst at Sanford C. Bernstein.
Regardless of which technology is better, lower prices are seen as key to getting more consumers to shift from autos with combustion engines to EVs. Batteries account for 25 percent to 40 percent of total manufacturing costs for mass-manufactured battery electric vehicles, according to BloombergNEF.
That is set to drop to 20 percent or less in the next few years amid pressure to reduce costs.
Price fluctuations for cobalt and nickel won't hurt LG's battery margins, as contract prices with automakers are now designed to pass through raw material costs, according to Horace Chan, an analyst with Bloomberg Intelligence.
LG Chem has moved to reduce overhead by working with automaker partners including General Motors and Geely Automobile Holdings on building EV battery plants, which can cost more than $2 billion. Such ties put the company in a strong position to benefit from an eventual rebound in auto demand and growing adoption of EVs.
