South Korean manufacturers of automobile batteries have promised to provide a more reasonably priced battery chemistry that is preferred by their Chinese competitors in response to demand from customers looking to diversify away from China.

However, executives and company officials familiar with the business strategies of LG Energy Solution (LGES), SK On, and Samsung SDI claimed that it will be difficult to move forward with lithium iron phosphate (LFP) batteries since they are not yet able to compete on pricing.

The slowing sales growth of electric vehicles and the possibility of adjustments to US subsidies in the event that President Joe Biden loses the 2024 election, they claimed, are feeding their concerns.

According to the sources, the companies are hesitant to jeopardise their efforts to produce more affordable nickel-based batteries because, up until two years ago, they had only promoted lithium-ion batteries based on nickel for use in electric vehicles.

Battery manufacturers in South Korea have long maintained that their larger, lighter, and more energy-dense nickel-based batteries offer longer driving ranges.

However, the insiders claim that pressure from international automakers is currently pushing them to create LFP batteries.

“Our automotive customers have told us: ‘We would like to buy batteries from your firm – LFP batteries for our smaller cars and nickel batteries for our more premium cars’,” said an executive at a major Korean battery maker.

For this story, Reuters spoke with six sources in the battery sector. They declined to be identified and had no authority to speak with the media.

The three companies told Reuters in statements that they intended to develop LFP batteries that would improve on current models in terms of energy density and other aspects. Additionally, Samsung SDI stated that it intends to ensure LFP cost competitiveness by enhancing facilities and procedures as well as product design.

Analysts estimate that LFP batteries manufactured by Chinese suppliers such as CATL and BYD are about 20% less expensive than their nickel equivalents.

In addition to wanting to save expenses, automakers hoping to sell in the US also want to benefit from the subsidies for electric vehicles provided under the Biden administration’s Inflation Reduction Act.

However, starting next year, new U.S. regulations will severely restrict the amount of Chinese components in batteries that qualify for credits, so automakers will have to rely more on obtaining LFPs from non-Chinese vendors.

For instance, Ford Motor stated that the Mustang Mach-E SUV model that is presently on dealer showrooms is unlikely to be eligible for federal tax credits starting in January. Ford Motor employs LFP batteries, which are manufactured by CATL in China.

Currently, LFP automotive batteries are not produced by any of the three main South Korean producers, who together supply almost half of the world’s car battery supply outside of China. However, LGES also produces several kinds of LFP batteries.

It was recently announced by all three companies that they are speeding up LFP development. While Samsung SDI and LGES plan to go into mass production in 2026, SK On claims to have finished development and is in discussions with clients about starting up supply.

According to the sources, nevertheless, it will be difficult to match their Chinese competitors on price.

“While we are aware of the growing need for our own LFP battery production, we have to do it in a way that works for us and our clients, meaning we need to price LFP batteries competitively with Chinese products and we also need to make a profit,” the executive at the major battery firm said.

Establishing a supply chain for LFP will require time. First of all, the three companies will need to import the cathodes from China because there are no producers of LFP battery cathodes in South Korea.

According to Chung Wonsuk, an analyst at Hi Investment & Securities, LFP batteries created in Korea are probably going to cost 17% more than those made in China. If the batteries were made in the United States, that price difference may increase to 40% because of increased labour and infrastructural costs.

The three South Korean battery companies have disclosed investments totaling $44 billion over the last year to increase production capacity, primarily in the United States to be eligible for subsidies.

In the next two to three years, aggressively investing in the construction or retooling of plants for LFP manufacturing may be challenging, according to the sources, particularly in light of the slower sales of EVs, which are partially attributable to an increase in consumer car finance prices.

“It’s possible that there won’t be as many headline-grabbing investment announcements as there have been in recent years,” a representative of another Korean battery company stated.

Due to decreasing sales, General Motors, Ford, and Tesla—all of which purchase batteries from South Korean companies—have announced that they will postpone investing in electric vehicle technology.

“Recently, automaker customers have slowed their battery orders to manage their EV inventories…this is the first time the battery sector has faced such a pause since the EV renaissance of the past few years,” the first executive said.

Additionally, Korean battery manufacturers are aware that the front-runner Republican in the 2018 U.S. presidential election, Donald Trump, intends to drastically reduce incentives for electric vehicles.

“Making batteries in the U.S. doesn’t really generate much profit in the first place,” said Cho Hyunryul, a senior analyst at Samsung Securities.

“If U.S. subsidies were significantly reduced, then South Korean battery makers might consider…diverting their resources to other regions.”

(Adapted from Crast.net)

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