Daily Management Review

LG Chem To Spinoff Its Battery Business As Demand For Electric Vehicles Rise


LG Chem To Spinoff Its Battery Business As Demand For Electric Vehicles Rise
With the rise in global demand for electric vehicles and a consequent rise in interest in the battery sector that powers electric vehicles, its battery business will be spinned off by LG Chem in December.
The plans for creating a new subsidiary, which will tentatively called LG Energy Solution, have been passed the board of the company, the South Korean tech giant said on Thursday. The decision will be further ratified by the shareholders of the company at an annual general meeting that is scheduled for October 30 this year.
"This is the right time for the spinoff as the battery industry is growing rapidly and profits from the EV battery sector are increasing," said the company in a press release. "With the spinoff we can focus on a specialized business sector as well as improve efficiency in management, boosting values for the company and shareholders."
With the increase in demand for electric vehicles, the growth in the global EV battery market has also been fast. Compared with 25.5G gigawatt-hours last year, battery demand from EVs produced in Europe will reach 1,200 gigawatt-hours per year by 2040, said projections by the consultancy firm McKinsey. According to McKinsey report, compared to the current confirmed battery projects in Europe, the projected demand for car batteries for electric vehicles that will be manufactured in Europe will be more than five times.
With a global market share of about 25 per cent, LG Chem is one of the major leaders in the world EV battery market. The client list of the company includes a large number of global automakers including Hyundai Motor, Kia Motors, GM, Ford, Volkswagen, Renault and Volvo.
The company said that after the spinoff, LG Chem will own 100 per cent stake in LG Energy Solution. Considerations of whether to go for a separate listing for the battery unit were also being made by the company. 
Investors of the company were however concerned about the spinoff hitting the value of the company which also owns and operates petrochemical and bioscience businesses which reflected in a drop of 6.4 per cent in the stocks of LG Chem on Thursday after the announcement.
However the company assured that since its chemical cycle is improving beyond batteries, therefore the company would enjoy better performances.
"We see further upside to LG Chem's share price, driven by growth in electric-vehicle batteries and an uptrend in the chemicals cycle," said Cindy Park, an analyst at Nomura. "Growth in the chemicals business year-to-date has surpassed our expectations, with 'stay-home' demand for home appliances, COVID-19 fiscal policies boosting construction work, and COVID-19 spurring demand for single-use plastics and masks."