As China fights to curb the dirty air engulfing its cities, South Korean manufacturers are looking to cash in on the cleanup by expanding their production of electric car batteries.
LG Chem Ltd. (KRX:051910) signed a preliminary agreement on Wednesday to build a rechargeable-battery factory in China’s eastern city Nanjing by the end of next year. The battery giant said it plans to invest hundreds of millions of dollars in the plant, which when completed will have the capacity to produce batteries for more than 100,000 electric cars per year, LG Chem said in a statement.
The Korean company will operate the plant in partnership with two Chinese-controlled companies. LG Chem will own half of the joint venture, while the other half will be unevenly divided between the two Nanjing-based firms. LG Chem declined to disclose the total amount of investment by all three parties, Wall Street Journal reported.
The Nanjing plant is expected to generate nearly $1 billion in total sales from 2015 to 2020, LG Chem said.
The battery factory could give LG Chem an early edge in the burgeoning market for emission-free vehicles in China, according to analysts. While demand for electric cars has so far been sluggish in the world’s largest car market, Chinese sales are expected to pick up in the coming years thanks to government targets to put 500,000 plug-in cars on the road by 2015 and 5 million vehicles by 2020.
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“[LG Chem’s] expansion into China is positive in that it can gain early access to a potentially huge market, as demand for electric vehicles is expected to take off after 2015,” Lee Ji-Yeon, an analyst at Taurus Securities, told Financial Times.
LG Chem’s plant will supply Chinese carmakers such as SAIC Motor (SHA: 600104) and Qoros Auto Co. Ltd. and global auto companies such as General Motors Co. (NYSE:GM) and Renault SA (EPA:RNO). The company also makes batteries for electric vehicle models made by Ford Motor Co., Hyundai Motor Co., Kia Motors Corp., and Zhejiang Geely Holding Group Co’s Volvo Car Corp., WSJ noted.
The announcement comes just months after Samsung SDI (KRX:006400) unveiled a similar battery expansion plan in China. The South Korean manufacturer said in January that it would build a car battery plant in Xi’an by 2015, as well as invest $600 million in the joint project with a local partner over the next five years, Financial Times said. Samsung SDI provides batteries for Chrysler and BMW’s electric car models, and has partnered with Ford to develop new plug-in battery technologies.
Entrepreneur Elon Musk's Tesla Motors Inc. (NASDAQ:TSLA), the darling of electric car fans, also has plans for a proposed battery “gigafactory,” though it hasn’t decided yet where to build it. Japanese firm Panasonic Corp. (OTCMKTS:PCRFY) in May signed a letter of intent to participate in building the factory, which could cost as much as $5 billion and allow Tesla to sell as many as 500,000 cars a year.