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For battery challenger, it’s build, build, build

5 min read

Jun Kim is spending $1.6 billion to build a battery factory in Georgia — and it’s not enough. Not even close.

His company, SK Innovation of South Korea, needs to spend twice that. And frankly, that won’t be enough either. By mid-decade, Kim aims to have five times the Georgia project’s capacity scattered around the world.

“When I became CEO in 2017,” he said, “I had to ask the question: Is this the right time for us to invest in batteries, and do we have the financial resources and technology to do what it will take?

“We felt that the market was very ripe and we did have a competitive advantage. This could be one of the biggest opportunities for us if we invest now. So I made the decision to enter the market aggressively.”

“Aggressively” is almost an understatement.

Since that decision in 2017, SK has launched construction of the plant in Commerce, Ga., which by 2022 will yield 10 gigawatt-hours of battery-cell production (the industry’s peculiar way of measuring production capacity). Kim said it will be necessary to double the plant’s size to 20 GWh by 2023, which would supply about 250,000 vehicles. And still more is likely to come after that.

SK Innovation has also invested in the South Korean home market to expand capacity there, from 1.7 GWh of startup volume to 5 GWh.

In China, the world’s biggest market for electric vehicles, SK is investing to increase from 7.5 GWh of capacity to 27.5. SK also expects to acquire the capacity of another company there to obtain an additional 8.5 GWh. And it has begun building still another production base in Hungary that will yield 23.5 GWh of battery capacity by 2022.

All of SK’s current plants together add up to nearly 85 GWh of capacity, according to Kim’s calculations, enough to supply about 1 million vehicles a year.

But that’s not enough, either, he points out.

“If we continue to expand,” the CEO said, “by 2025, our goal of reaching capacity for 100 GWh should not be a challenging goal at all.”

That would allow SK to supply batteries for about 1.2 million vehicles a year, depending on the size of the batteries.

The big question for SK, as it racks up worldwide plant investment that might end up costing more than $10 billion in a short time, is whether even 100 GWh will be enough for a world inching toward vehicle electrification.

SK is part of the global race of auto parts suppliers and others to support a coming wave of electrified cars, trucks, vans and buses.

The notion that automakers will shift from gasoline engines to electric powertrains over the next decade or two signals a seismic disruption of industry technologies. But the sudden arrival of barely heard of companies such as SK Innovation turns upside down the age-old industry order, in which automakers’ names represented their powertrains, not just their vehicles. Ford Motor Co. has always built the engines for Fords and Lincolns. Toyota Motor Corp. makes engines for Toyota and Lexus vehicles.

But in the next chapter of the industry, companies such as SK Innovation, LG Chem, Samsung and Panasonic will essentially serve as the world’s engine plants.

It is a daring plunge for SK. In 2017, when the CEO surveyed the financial resources at his disposal, he was contemplating the deep pockets of its parent organization, SK Group, one of South Korea’s largest business groups. With major operations in oil refining, petrochemicals, shipping, cellphone and Internet services, semiconductors and construction, SK posted 2018 sales of about $143 billion and operating profit of $24.5 billion.

“We are able to have a sufficient cash flow to support our efforts,” Kim said.

But it wasn’t merely a question of whether an oil and telecommunications conglomerate could afford the tab — it also represented an existential question for SK.

“As an oil refining company, the shift from combustion engines to electric power could be a risk for us,” said Kim, 58, who earned an MBA while working at SK Group in positions in oil, chemicals, strategy and communications. “It might be a threat. So we felt the need to respond quickly.”

Why quickly? Some world markets — especially the U.S. — talk about EVs and other electrification, but sales continue to fall short of enthusiastic forecasts.

The reason for urgency is the competition: SK’s rivals are already far ahead of Kim’s aggressive plans.

China’s CATL, the largest producer of EV batteries, has twice SK’s backlog of customer orders, according to Kim’s best estimate. SK’s fellow Korean competitor LG Chem dwarfs SK’s backlog.

Japan’s Panasonic is also a rival to SK’s ambitions, and so is another major Korean supplier, SDI.

“SK is a very big company with deep pockets,” observed Ariel Cohen, principal of International Market Analysis Ltd., a risk advisory firm in Washington, D.C. “But competing in this new global environment will require more than money. It will require leadership and quality management, which many Korean companies are fortunate to have. But it will also require a technological edge.

“You have to be the company that delivers the best battery technology.”

The battery manufacturing rivalry is not limited to who can plan and spend the biggest.

Shortly after SK announced its plan to build its plant in Georgia, which is initially intended to supply Volkswagen’s plant in Chattanooga, it was hit with a complaint by LG Chem in U.S. District Court in Delaware and to the U.S. International Trade Commission. LG Chem accused SK of hiring away employees to plumb them for trade secrets on how to mass-produce batteries and how to develop their technologies.

The case has been moving through the commission, and construction crews continue building the factory.

In February, the commission issued a preliminary ruling in favor of LG Chem’s argument. LG Chem had accused SK of destroying evidence in the case.

The commission is expected to issue a final ruling on the matter in October. The complaint could put a wrinkle into Kim’s plans for SK in the U.S., but it is not likely to derail the plan, according to a company source who asked not to be identified.

Late last year, meanwhile, LG Chem and General Motors said they would jointly invest $2.3 billion to build an EV battery plant in Lordstown, Ohio.

GM intends to use the batteries in a new family of EVs in the 2021-22 time frame.

The Lordstown plant would represent about 30 GWh of battery production capacity, compared with SK’s 20 GWh planned for Georgia.

In a statement emailed to Automotive News last week, SK Innovation called the commission’s preliminary ruling “unfortunate” and said SK intends to appeal it.

But the statement also signaled that SK hoped to resolve the matter.

“As long-time industry peers, SK Innovation and LG Chem have a shared history of promoting innovation and developing advanced technologies,” the statement said. “We believe that it is in our collective interest to together continue creating maximum economic and social value for our customers, partners, and the communities we serve.”

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