LG Energy Solution readies IPO to take on Chinese EV battery rivals
Supplier to Tesla, Ford and VW will raise $11bn in what is expected to be South Korea’s biggest listing
LG Energy Solution, the world’s second-largest electric vehicle battery maker, is preparing to raise $11bn in one of South Korea’s largest listings as it battles Chinese rivals to dominate the market.
The supplier to Tesla, Ford and Volkswagen plans to use the proceeds of the initial public offering to take on Contemporary Amperex Technology (CATL), the world’s biggest global battery group valued at more than $196bn.
LG Energy will offer 34m new shares in a range of Won257,000-Won300,000 a share. At the top of the price range the group will have a market value of Won70.2tn ($59.4bn), making it South Korea’s third-most valuable company after chipmakers Samsung Electronics and SK Hynix.
Analysts expect the IPO to be priced at the top end on January 14 as investors bet on the fast growth of the global EV market. Trading is set to begin on January 27.
“We have a wider range of customers not only limited in China, but also in the United States as well as in Europe, while CATL’s growth has been mostly backed by Chinese automakers,” Kwon Young-soo, the company’s chief executive, told an online news conference on Monday.
Analysts said the valuation may be underrated. LG Energy controls 20.5 per cent of the global EV battery market, trailing CATL’s 31.8 per cent, according to SNE Research.
“We believe the company is well positioned to be the leading battery maker outside of China, but investors will have to weigh up recall risks and increased competition from LFP [lithium-iron-phosphate] in the short term,” said Bernstein analysts in a Monday report.
LG Energy is a wholly-owned unit of LG Chem, South Korea’s biggest petrochemical company, and supplies to global automakers.
The company plans to invest about Won8.85tn in its battery plants in South Korea, Poland, the US and China by 2025 to nearly triple its capacity to 400GWh.
LG Energy has faced criticism for its lower profit margin than CATL. The company, which suffered losses in 2019 and 2020, posted an operating margin of slightly more than 5 per cent in the first nine months of last year, compared with CATL’s 12-15 per cent, according to analysts.
“Our profitability gap with CATL will get narrowed substantially,” said Kwon, predicting that the company will overtake CATL in terms of market share because of its more diverse customer base.
But LG’s expensive nickel-based batteries are facing growing competition from less-advanced but safer LFP batteries produced by Chinese companies including CATL.
LG’s defective batteries that could cause fires have forced General Motors and Hyundai Motor to conduct some of the industry’s most expensive recalls, raising concerns about battery safety. Kwon said the company planned to produce LFP batteries for some EVs.