[Exclusive] L&F Pursues Cathode Material Supply Contract with SK Innovation Worth up to 1.6 Trillion KRW

L&F Anode Material Applied to SK Innovation Battery, Supplied to Volkswagen MEB
Final Contract Signing Pending... Disclosure After Joe Biden Administration's Veto Action

[Asia Economy Reporter Lee Seon-ae] L&F is set to sign a cathode material supply contract worth up to 1.6 trillion KRW with SK Innovation. The batteries made by SK Innovation using L&F's cathode materials will be supplied to Volkswagen Group's next-generation electric vehicle platform (MEB) models. Accordingly, the confirmed contract period and volume are expected to depend on whether U.S. President Joe Biden exercises his veto power regarding the ongoing litigation between LG Energy Solution and SK Innovation over battery trade secret infringement.

According to industry sources on the 7th, L&F is expected to finalize a cathode material supply contract with SK Innovation and announce the contract details within this month. Currently, both companies are only awaiting the final signing of the contract. The contract period is discussed to be between 3 to a maximum of 5 years. For a 3-year contract, the contract value is estimated at 1 trillion KRW, and if finalized for 5 years, the contract value is expected to reach 1.6 trillion KRW. SK Innovation's batteries using L&F's cathode materials will be supplied to Volkswagen's MEB project (Europe and U.S. volumes). The confirmed contract period and volume will depend on the Biden administration's veto decision on the import ban on SK Innovation, expected this week, followed by a public announcement. An SK Innovation official stated, "If the contract is finalized, we plan to announce it by mid-April," adding, "Nothing has been decided yet."

The Biden administration is scheduled to decide by the 10th (local time) whether to exercise veto power over the import ban imposed on SK Innovation. Since the 10th is a holiday, it is also possible that the decision could be postponed until the 12th. In February, the U.S. International Trade Commission (ITC) ruled in favor of LG Energy Solution in the trade secret infringement lawsuit, issuing a limited 10-year import ban on SK Innovation. From the decision date, the Biden administration has 60 days to assess the impact of the measure on U.S. public interest and decide whether to exercise veto power. SK Innovation requires President Biden's veto to continue operating its factory under construction in Georgia, U.S. Accordingly, Kim Jong-hoon, chairman of SK Innovation's board, recently met with U.S. political figures to advocate the business continuity from a public interest perspective.

If the veto is not exercised, the contract period between the two companies is expected to be shortened. SK Innovation's supply volume to Volkswagen will be exempted from the import ban for two years, so the possibility of the contract falling through is very low. However, Volkswagen's battery type is also expected to affect the contract volume. An industry insider said, "The detailed volume confirmation between the two companies must consider that Volkswagen is gradually reducing pouch-type volumes."

At Volkswagen's recent 'Power Day' event, it was announced that from 2030, 80% of batteries will be prismatic type, and the remaining 20% will be cylindrical and pouch types. Currently, LG Energy Solution produces pouch and cylindrical types, Samsung SDI produces prismatic and cylindrical types, and SK Innovation produces pouch type batteries.

The cathode materials for SK Innovation's batteries used in Volkswagen MEB products will use both EcoPro BM and L&F products. EcoPro BM has already completed a contract earlier. Recently, EcoPro BM signed a mid-to-long-term cathode material supply contract worth about 2.7 trillion KRW with SK Innovation. An industry source said, "SK Innovation has already completed a contract with EcoPro BM and is signing a new contract with L&F. It can be understood that the cathode materials applied to Volkswagen's MEB project batteries will be a mix of products from both companies."

The securities industry is paying attention to L&F's potential for mid-to-long-term orders. On January 11, Mirae Asset Securities raised L&F's target stock price by 48% to 105,000 KRW, stating, "L&F has succeeded in domesticating cathode materials previously supplied to SK Innovation by Chinese companies, increasing the possibility of mid-to-long-term orders from SK Innovation." On the 31st of last month, researcher Kim Cheol-jung of the same securities firm further raised the target price by 19% to 125,000 KRW, explaining, "There is a high possibility that L&F's cathode materials will be adopted during the battery internalization process of OEM companies." Mirae Asset Securities expects L&F to achieve sales of 1.679 trillion KRW and operating profit of 110 billion KRW in 2022. These figures represent a 130.3% increase in sales and a 340% increase in operating profit compared to the 2021 forecast.

Meanwhile, Volkswagen stated at its annual press conference, "We will deliver 1 million electric vehicles to customers this year," and set a goal to become the leader in electric mobility by 2025 at the latest. The target of 1 million units this year is about 2.5 times the sales volume of last year. Volkswagen plans to launch up to 27 MEB-based models by 2022.

This content was produced with the assistance of AI translation services.