Battery Yes, Semiconductor No... Why Overseas Battery Plants Benefit National Interests

K-Battery Also Crosses Into Equipment - Part 1
Top 3 Battery Companies to Invest 100 Trillion KRW in Facilities
30-40% or More of This for Equipment Investment

Effect of Leading NCM Battery Market
Strengthened Equipment Ecosystem
Overseas Batteries Also Say "We Will Buy Korean Equipment"

"Equipment on overseas production lines? They are all domestically produced."

When asked about the localization rate of equipment at local factories, most officials from domestic battery companies, who are currently busy building overseas factories, respond that the equipment is domestic. It is taken for granted that the equipment is domestic. However, the localization rate of semiconductor equipment, which has represented Korea for decades, is less than 30%. In other words, when a battery factory is established overseas, Korean equipment is exported abroad. This creates a twofold effect of selling both batteries and equipment.

The strength of the Korean battery industry lies in the 'SoBuJang ecosystem' (Materials, Parts, and Equipment). Among materials, parts, and equipment, domestically produced equipment, which had the least attention, also crosses the waters together with 'K Battery.' About 30-40% of the capital expenditure (CAPEX) for battery factory facilities is spent on equipment expansion. Even if tens of trillions of won are invested to build factories overseas, a significant portion of the investment returns to the domestic battery ecosystem.

The three major battery companies plan 100 trillion won in facility investment going forward... Over 30 trillion won on equipment alone

The scale of global factories that the three domestic battery companies plan to build by 2027 is 1,109.3 GWh annually. Excluding currently operating factories, the additional factory capacity to be built by 2027 reaches 757.3 GWh. Assuming an average facility investment of 130 billion won per 1 GWh, the total facility investment amounts to 9.8449 trillion won, approaching 100 trillion won. More than 30-40% of the facility investment goes into equipment purchases. In terms of amount, this is approximately 29.53 trillion to 39.38 trillion won. The proportion of equipment investment within facility investment increases as the factory scale grows. Construction costs decrease with scale due to economies of scale, but equipment costs increase proportionally with scale. Especially in the U.S., which is building many large-scale factories over 30 GWh, the proportion of equipment costs is expected to be higher than in China, Hungary, and Poland.

Most of this equipment is domestically produced. SK On stated that the localization rate of equipment in its new battery factories is over 95%. LG Energy Solution reported at the 'K Battery Development Strategy Report Meeting' held in July 2021 at the Ochang plant in Cheongju, Chungbuk, that the localization rate of equipment over the recent three years (2018-2020) was about 87%. Samsung SDI has not disclosed its domestic equipment ratio, but the securities industry estimates that it uses more than 80% domestically produced equipment in its processes. As equipment orders accelerate centered on North America, where explosive growth is expected around 2025, a favorable wind is blowing not only for core materials such as cathode materials but also for the equipment industry.

Why is the self-reliance of domestic battery equipment high?

The situation is different in another advanced industry, semiconductors. The localization rate is around 20%. The semiconductor equipment localization rate refers to the proportion of equipment supplied to domestic semiconductor companies that is produced domestically by domestic companies. Among domestic equipment imports, 77.5% depend on three countries: the U.S., Japan, and the Netherlands. The domestic sales of the world's five major semiconductor equipment companies?Applied Materials (U.S.), ASML (Netherlands), Lam Research (U.S.), Tokyo Electron (Japan), and KLA (U.S.)?amounted to $20.3 billion (about 25.9637 trillion won), accounting for 81.3% of the market share (data from Korea International Trade Association International Trade and Commerce Research Institute).

The high localization rate of battery equipment is because the three domestic battery companies have secured the market. Although lithium-ion batteries, which currently dominate, originated in Japan, large-scale mass production was first started by domestic battery companies. Since the 1990s, they began mass-producing small batteries used in laptops and mobile phones. Thanks to this, the equipment ecosystem also became robust. It was possible because there were continuous demand sources nearby, such as Samsung Electronics, LG Electronics, and Hyundai Motor Company. The scale has grown even larger with the advent of the electric vehicle era.

Equipment companies winning overseas orders

Battery equipment companies, which have developed technological capabilities through large-scale supply, are expanding not only domestically but also overseas. It is rare to find companies outside Korea that have a track record of supplying large-scale equipment to overseas factories mass-producing high-nickel batteries represented by NCM (Nickel-Cobalt-Manganese). Of course, some Chinese companies have experience supplying overseas factories. However, the U.S. and Western countries are excluding Chinese companies from their supply chains. Due to this 'exclusion of China' policy, domestic equipment companies are expected to enjoy indirect benefits. In fact, the U.S. Department of Commerce announced last year the Unverified List (UVL) of export-controlled companies, including 33 Chinese companies. This list included HiMusing, a supplier of assembly process equipment for CATL.

Domestic battery equipment companies supply products not only to the three Korean battery companies but also to European and American battery cell manufacturers. As European companies aiming for battery mass production after 2026 increase their equipment demand, the possibility of additional orders is high. Companies such as Hanatech, SFA, and Top Material have formed equipment consortia to supply domestic battery equipment to Northvolt, Envision AESC, Freyr, and ACC. As everyone rushes into battery mass production, Korean equipment companies with technological capabilities and large-scale order achievements are celebrating. There is no rule that an equipment company like the Dutch ASML, which dominates the semiconductor field, cannot emerge in Korea. However, it is evaluated that battery equipment technology needs to be further advanced in areas such as cost reduction.

The global battery equipment market is expected to grow from 7.6319 trillion won this year to 39.691 trillion won by 2030, with an average annual growth rate of over 31% (data from market research firm Presidence Research).

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