LG Chem has inked a partnership with two state-run Chinese companies to build a battery plant for electric vehicles.
To be located in Nanjing, China, the plant will be operational by end-2015 when it will be able to produce up to 100,000 battery packs per year, reported The Korea Times. The LG subsidiary signed an agreement with China's Nanjing Zijin Technology Incubation Special Park Construction Development and Nanjing New Industrial Investment Group, and is planning to create a joint venture by August.
LG Chem didn't want to reveal financial details involved in the deal, but the report cited industry analysts who estimated that the factory would cost US$500 million, half of which would come from LG and the remaining half will be split between the two Chinese companies.
The new manufacturing facility will be able to support all key manufacturing processes including cells, modules, and packs. Battery packs produced at the plant will be sold to Chinese and global car manufacturers that have business operations in China, LG said, which added that Nanjing was chosen because several Chinese car makers are based on in city. Nanjing is the capital of Jiangsu province, located in Eastern China.
According to The Korea Times, technology subsidiaries under the LG Group including LG Electronics and LG Display currently operate a complex in Nanjing. The Korean company said its new facility will receive tax and administrative benefits from the Chinese government, and is expected to churn over 1 trillion won (US$991.6 million) in revenue by 2020.
LG Chem currently operates similar battery plants in Ochang and Michigan in the United States, and has more than 20 clients in the automotive industry including General Motors and Volvo. The Korean company had earmarked the battery business as a potential cash-cow for LG Chem, as leading car manufacturers look to introduce energy-efficient electric vehicles, including those in China. The Chinese market is poised to become the world's biggest site for electric vehicles, with Beijing roads targeting to have 500,000 such vehicles by 2015, and 5 million by 2020.
U.S. electric carmaker, Tesla Motors, in January said it would start selling its Model S in China, at price points that would not differ much from that in the U.S. where the electric car is sold for between US$70,000 and US$100,000. The U.S. automotive maker sold over 25,000 cars last year and is looking to double this number this year, fueled by anticipated new demand from China.
The potential growth in the electric car market may help LG plug holes in some of its other business.
A report in April revealed that South Korean tech giants including LG, Samsung, and SK were reassessing their dwindling solar business in the face of tough competition from Chinese players. LG Chem then said the solar tech business wasn't as attractive as it was once perceived to be and seeing increased losses under aggressive expansion by Chinese manufacturers.