LG Chem is expected to hold a board meeting on Thursday to decide on splitting off its battery business, TheElec has learned.
The motion will be approved and LG Chem will form a new wholly-owned subsidiary within the first half of 2021, people familiar with the matter said.
LG Corp will own LG Chem, and LG Chem will wholly own the newly formed battery company.
LG Chem initially considered a spin-off as well, with existing shareholders owning the same portion of stakes of the new company. However, this was scrapped as LG Corp’s ownership of the new company would have been weakened. A spin-off would also have made it difficult to list the new company.
Meanwhile, a split-off company would be able to sell some of its stake during listing to secure cash and can form joint ventures with automobile companies.
The global electric vehicle (EV) battery market is growing fast. But battery makers are more and more reliant on materials from China and thin margins given by automobile companies.
LG Chem set the price of its batteries at between US$100 to US$120 per 1kWh for its supply to Volkswagen’s Modular Electric Drive (MEB) platform. This is lower than the average market price of US$135.
LG Chem is aiming to scale to overcome this.
Battery industry also require CAPEX in the billions of dollars. LG Chem’s annual battery production rate is expected to exceed 110GWh this year. It is planning to expand its production capacity throughout the coming years. It is also planning to form a join venture with Hyundai Motor Group.
The plan to split-off the battery business is likely aimed at securing cash for all these projects.
The task force overseeing the matter in LG Chem deemed a split-off more advantageous, the people said, and the process will accelerate its plan to expand its battery factories.