High Inflation Compounded by Economic Recession... Companies Deeply Concerned About 'Investment in the US'

LG Energy Solution Invests 1.7 Trillion KRW
Comprehensive Review of US Battery Plant

Companies Face Mid-to-Long-Term Investment Concerns

Battery Industry May Pause
Samsung Has No Adjustment Plans Yet

LG Energy Solution and General Motors (GM) are establishing the electric vehicle battery joint venture 'Ultium Cells' in Ohio, USA. (Image source=Yonhap News)

[Asia Economy Reporters Choi Dae-yeol, Jung Dong-hoon, Moon Chae-seok] As concerns over stagflation (economic stagnation accompanied by rising prices) in the United States grow, domestic companies are increasingly facing dilemmas regarding their investments in the U.S. This is due to the likelihood that the costs will far exceed the initially planned investment amounts amid recent inflation and rising exchange rates. If worsening external economic conditions such as supply chain disruptions caused by the Russia-Ukraine war and additional interest rate hikes by the U.S. Federal Reserve (Fed) occur, there is speculation that companies may slow down their previously proactive U.S. investments.

According to industry sources on the 29th, LG Energy Solution has decided to fully reconsider its plan to invest 1.7 trillion KRW in building a battery factory in Arizona, USA. This factory was initially confirmed and announced in March to meet the increasing battery demand mainly from local electric vehicle startups. It was also planned as a new investment solely by LG Energy Solution, not a joint venture with automakers. The company stated, "Due to the worsening business environment, investment costs have surged, and we are carefully reviewing the timing, scale, and details of the investment."

With LG Energy Solution reconsidering its investment strategy, there is speculation that the battery industry, which has been competitively increasing investments in the U.S., may take a breather. The three domestic battery manufacturers?LG Energy Solution, SK On, and Samsung SDI?have collectively planned to invest 19.65 trillion KRW by 2025 to build seven joint venture factories and four independent factories in North America. A battery industry insider said, "It is true that there are difficulties due to high exchange rates and inflation, and we are entering a phase of response," but added, "We do not currently believe that battery demand will decrease, so the possibility of delayed or reduced overseas investments is low."

Major conglomerates that have announced large-scale investments in the U.S. maintain that there are no changes to their existing plans. Samsung Electronics has effectively begun construction on its second foundry plant in Taylor, Texas, with an investment of $17 billion. Hyundai Motor announced it will invest $5.5 billion (approximately 7 trillion KRW) to build a factory in Savannah, Georgia, producing 300,000 electric vehicles annually starting in 2025. SK has also significantly increased its local investments in semiconductors and batteries. Given the unfavorable local economic conditions and exchange rates, there are calls to revise local employment and facility investment strategies. An industry official said, "We do not see these variables as significant enough to adjust the timing or scale of investments," but added, "Given the unprecedented global uncertainties including those in the U.S., there may come a time when strategies need to be revised."

Meanwhile, according to statistics from the Export-Import Bank of Korea, direct investment by Korean companies in the U.S. reached $8.829 billion in the first quarter of this year, more than doubling compared to the same period a year earlier. Even in the previous year, when the impact of COVID-19 had not fully subsided, investments totaled $27.8 billion, nearly doubling from the year before. The U.S. accounts for one-third of all overseas investments by Korean companies, making it the single largest country for such investments.

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