LG Electronics agrees $1bn EV parts joint venture with Canada’s Magna
Deal aimed at capturing bigger share of global market sends South Korean group’s shares up 30%
LG Electronics will spin off part of its electric vehicle components business and set up a $1bn joint venture with Canada’s Magna International — a deal that is aimed at capturing a bigger share of the fast-growing global EV parts market and which lifted its shares by a third.
The South Korean group will hold a 51 per cent stake in the JV and Magna the rest. The venture will produce e-motors, inverters and onboard chargers in LG’s factories in Incheon, South Korea and Nanjing in China, LG said.
It is LG’s second major investment in the auto industry, following its $1.3bn purchase of ZKW Group, an auto-lighting and headlight systems provider, in 2018. Earlier this month, the group’s battery-making affiliate LG Chem spun off its EV battery and energy storage business into a standalone unit.
Auto parts suppliers are keen to make inroads into the lucrative EV market as traditional automakers accelerate their transition to electrification in response to stricter regulations on gasoline-powered cars and rapid improvements in EV battery technology.
“The market for e-motors, inverters and electric-drive systems is expected to have significant growth between now and 2030 and the JV will target this fast-growing global market with a world-class portfolio,” LG and Magna said in a joint press release.
Shares in LG Electronics climbed by their maximum daily limit of 30 per cent on Wednesday to Won119,500, their highest in nearly 10 years. The benchmark Kospi Composite index was up 1 per cent.
“There were a lot of doubts about the future of LG’s auto components business but the company has a well-established product portfolio,” said Kim Young-woo, an analyst at SK Securities. “The tie-up with Magna will help it benefit more from the growth of EVs and self-driving cars.”
The deal is the latest in a wave of consolidation in the sector. Gear maker BorgWarner took over rival Delphi earlier this year, while Toyota Motor has set up an EV parts-making venture with Japanese manufacturers Aisin Seiki and Denso.
LG said its joint venture with Magna would be a leading player in the global EV components market by integrating its advanced manufacturing techniques with the Canadian auto supplier’s parts-making experience and global networks.
The South Korean group’s vehicle component solutions business has reported operating losses for the past 19 quarters but the company expects to swing to profit in the third quarter of next year.
LG has supplied EV components including motors and battery packs for GM’s Bolt and Jaguar’s I-Pace, while Magna makes EV gear for Volkswagen and other carmakers.
The LG-Magna deal will be completed in July next year pending LG shareholders’ approval. The joint venture, tentatively named LG Magna e-Powertrain, will employ about 1,000 people in the US, Seoul and China and service orders from Magna and its clients.