SEOUL, April 11 (Korea Bizwire) — Two Korean battery makers reached a long-awaited settlement on Sunday to resolve their bitter battery battle, clearing prolonged uncertainty in the face of toughening competition on multiple fronts amid the growing electric vehicle market.
LG Energy Solution Ltd. and SK Innovation Co. said they have agreed to settle in the electric vehicle (EV) battery trade secret case, just one day before the U.S. International Trade Commission (ITC)’s import ban on SK was to take effect.
The ITC in February sided with LG in a trade secret case and ordered a 10-year import ban on SK, while giving temporary permits for shipments of battery parts for Volkswagen and Ford to carve out time for them to find new suppliers.
SK agreed to pay 2 trillion won (US$ 1.78 billion) in compensation, half in cash and half in royalty, and the two companies agreed to withdraw all other legal disputes at home and abroad and will not lodge further complaints in the next decade.
“The two companies agreed on sound competition and friendly cooperation for development of the EV battery industry in South Korea and the United States,” LG Energy Solution CEO Kim Jong-hyun and SK Innovation CEO Kim Jun said in a joint statement.
“(The two companies) agreed to make joint efforts for the Biden administration’s push to bolster the EV battery supply chain and its eco-friendly policy.”
Their settlement comes at a time while Chinese battery makers are aggressively investing to expand their capacity to capture a bigger share of the growing EV market.
Major automakers, including EV leader Tesla and German automaker Volkswagen, have also announced plans to develop their own battery technology and production capacity for their EV lineup.
LG and SK have been making pouch-type batteries, while China’s CATL and European battery manufacturer Northvolt focus on prismatic batteries.
Volkswagen’s recent announcement regarding in-house battery production and its plan to transition to the prismatic battery design by 2030 stunned its Korean battery suppliers.
“In light of the agreement, we will work together to develop the Korean battery industry’s ecosystem,” the two companies said.
The settlement averted the worst-case scenario for SK, which would have had to abandon its Georgia factory if the import ban took effect, which could hamper the Joe Biden administration’s EV push and cost American jobs.
The stakes were high for SK, which was building a $2.6 billion plant in Georgia to roll out EV batteries starting in 2022.
The two companies also agreed to withdraw the tit-for-tat EV battery patent infringement suits pending at the ITC, clearing the prolonged legal risks and saving additional litigation costs.
LG and SK spent $530,000 and $650,000, respectively, in lobbying efforts last year, according to data collected by the Center for Responsive Politics.
The compensation amount, which was larger than SK’s earlier proposal of less than 1 trillion won, adds financial burden on the company, which logged huge operating losses from its mainstay refinery business last year amid the COVID-19 pandemic.
SK Innovation’s sales tumbled 30.7 percent on-year to 34.2 trillion won last year, and the annual operating losses reached a record of 2.6 trillion won.
The EV battery business is crucial for SK Innovation as it has been exploring ways to reduce its reliance on the carbon-intensive refinery by shifting to the EV battery business under toughening environmental regulations.
SK Innovation, the world’s No. 6 EV battery supplier, plans to ramp up its battery production capacity globally to over 125 GWh by 2025, and in January, it announced a 1.3 trillion won investment plan to expand its Hungary factory.
The last-minute compromise removes a hurdle for the battery separator maker SK IE Technology Co. (SKIET)’s plan to list its shares on the Seoul bourse next month, with its market value estimated at up to 7.5 trillion won.
LG Chem, the parent of LG Energy Solution, is expected to benefit from the settlement money as it turned to red last year due to recall costs for Hyundai Motor Co.’s Kona EVs over fire risks.
In early March, LG Chem corrected its 2020 operating profit from 2.3 trillion won to 1.8 trillion won, reflecting 555 billion won in recall costs for Kona EVs.
The settlement is also a boon for LG Energy Solution’s planned Seoul bourse debut later this year to draw funds for its EV battery investment.
Its IPO plan has drawn keen attention as the company is a major supplier of batteries for nearly all major global carmakers, including Tesla, General Motors, Ford, Renault, Volvo and Volkswagen, as well as South Korea’s two largest automakers — Hyundai Motor and Kia Corp.
Market watchers expect the company to accelerate plans to list its shares within this year to ramp up its battery production capacity, estimating the upcoming IPO deal to be over 10 trillion won.
LG Energy Solution operates a lithium-ion battery factory in Michigan and is building a new factory in Ohio through its joint venture with U.S. automaker General Motors, which will be completed in 2022.
Last month, LG said it will invest 5 trillion won by 2025 to expand its battery production capacity in the United States to meet growing demand in the key market.