[New Product Name]② Electric Cars Can't Run Without LG

Battery Business Once Neglected Within the Group
Late Chairman Koo Bon-moo's Decision: "I'll Exclude It from CEO Evaluations"
High Growth Centered on North America and Record-Breaking Performance

[Asia Economy Reporter Choi Seoyoon] “We keep running deficits, I can’t do this anymore.”

Two former LG Chem presidents went to see then LG Group Chairman Koo Bon-moo and said this. From the perspective of a CEO whose business unit’s performance directly affects their own achievements, carrying the battery business that was running deficits ranging from hundreds of billions to thousands of billions of won was a heavy burden. Chairman Koo gave an answer only an owner could provide. “I will exclude the battery business performance from the CEO evaluation. Even if it runs at a loss, just focus on growing the business well.” It was a message that “I will take responsibility.” This happened when LG Energy Solution, the world’s second-largest battery maker that posted operating profits in the trillion-won range last year, was treated like an outcast within the group.

LG Group’s battery business dates back to the early 1990s. During a business trip to the UK, Chairman Koo encountered rechargeable secondary batteries that could be used multiple times and became confident in their business potential. After returning to Korea, he reviewed secondary battery development and began independent development in earnest in 1995. At the same time, he invested 10 billion won to build a pilot plant.

In October 2002, Koo Bon-moo, Chairman of LG Group, is seen testing a prototype created for electric vehicle battery development.
[Photo by LG]

They faced difficulties right from the start. Collecting information from Japan, which had succeeded in development earlier than Korea, was essential, but at that time Japan prohibited technology leakage at the national level, making it impossible to obtain information. The research team devised a clever plan. They slightly changed direction and tried to approach Japanese equipment companies. By persuading them, they checked one by one which equipment was supplied to manufacturers and proceeded with development.

As a result of persistent efforts, in November 1997, after 1 year and 6 months of development, they succeeded in mass-producing prototypes with the world’s highest capacity and lightest weight, surpassing Japanese products. The following year, they started the first mass production of small lithium-ion batteries in Korea. While Japanese companies succeeded in mass production after 10 years of research and development, LG Chem achieved this in just 3 years.

Although they succeeded in mass production of small batteries, they were nearly 10 years behind Japan. Chairman Koo believed they could beat Japan in medium and large batteries used in electric vehicles. Recognizing the potential of this market, they established a research corporation in the US in 2000 to conduct early research on secondary batteries for electric vehicles and to pioneer the North American market.

Performance became a stumbling block. There were opinions within the group that the business should be shut down. Despite investing trillions of won, operating profits were only in the hundreds of billions. In 2005, they recorded a deficit of 200 billion won. They also had to overcome external adverse conditions such as the Chinese government excluding electric vehicles equipped with Korean company batteries from the list of electric vehicle subsidy recipients. Even then, it was Chairman Koo who steadied the battery business. He said, “The battery business is a future growth engine,” and “Don’t give up, look at the long term, and focus on research, and results will surely come.”

Chairman Koo’s steadfastness, which endured numerous crises, is now showing results as the electric vehicle market grows rapidly. LG Energy Solution, which spun off from LG Chem in December 2020, posted sales of about 25.6 trillion won and operating profit of about 1.2 trillion won last year. Both sales and operating profit are record highs. It is growing rapidly, centered on the North American market. As of the end of last year, North America accounted for 70% of the total order backlog of 385 trillion won. There is even talk that North American electric vehicles cannot run without LG Energy Solution batteries. The US electric vehicle market, ahead of the implementation of the Inflation Reduction Act (IRA) this year, is expected to be the fastest-growing market in the world.

The secret to LG Energy Solution capturing US Tesla, General Motors (GM), European Stellantis, and Japanese Honda is its technology. As of the end of the third quarter last year, the cumulative number of patents was 25,825 (8,447 domestic, 17,378 overseas). This is five times more than China’s CATL, the world’s number one battery maker. There is even a saying that developing new batteries without LG Energy Solution’s patents is impossible. LG Energy Solution, which was the first domestic company to enter secondary battery research in 1992, has invested 5.3 trillion won in research and development (R&D) over the past 10 years. It has about 3,300 R&D personnel stationed in the US, Europe, China, and other locations.

LG Energy Solution has established itself as the most successful affiliate within LG Group, thanks to the growth of the electric vehicle market. It ranks first in both performance bonuses and market capitalization within the group. Its position within the group is solid, led by Vice Chairman Kwon Young-soo, a close aide to LG Group Chairman Koo Kwang-mo and a key figure during Chairman Koo Bon-moo’s era. LG Energy Solution’s share of LG Chem’s total operating profit is 40%, 2.6 times higher than the previous year’s 15%.

Lee Chang-sil, Vice President and Chief Financial Officer (CFO) of LG Energy Solution, said at the 2022 earnings conference call held on the 27th of last month, “The global battery market is expected to grow 33% year-on-year to 890 GWh this year,” adding, “We will focus on the high-growth North American market and continue to develop various future technologies such as lithium-sulfur and all-solid-state batteries.”

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