Sat. Jan 22nd, 2022

LG Energy Solution, the world’s second largest electric vehicle battery maker, is preparing to raise $ 11 billion in one of South Korea’s largest listings as it battles Chinese competitors to dominate the market.

The supplier to Tesla, Ford and Volkswagen plans to use the proceeds of the initial public offering to tackle Contemporary Amperex Technology (CATL), the world’s largest global battery group worth more than $ 196 billion.

LG Energy will offer 34 million new shares in a series of Won257 000-Won 300 000 per share. At the top of the price range, the group will have a market value of Won70.2tn ($ 59.4bn), making it South Korea’s third most valuable company after chipmakers Samsung Electronics and SK Hynix.

Analysts expect the IPO to be priced at the top end on January 14, as investors are betting on the rapid growth of the global EV market. Trading will begin on January 27th.

“We have a wider range of customers, not only in China but also in the United States as well as in Europe, while CATL’s growth has been largely supported by Chinese automakers,” said Kwon Young-soo, the company’s CEO , at an online news conference Monday.

Analysts said the valuation could be underestimated. LG Energy controls 20.5 percent of the global EV battery market, with 31.8 percent of CATL, according to SNE Research.

“We believe the company is well positioned to be the leading battery manufacturer outside China, but investors will need to weigh recall risks and increased competition from LFP. [lithium-iron-phosphate] in the short term, ”Bernstein analysts said in a Monday report.

LG Energy is a unit wholly owned by Lg chem, South Korea’s largest petrochemical company, and supplied to worldwide automakers.

The company plans to invest around Won8.85tn in its battery plants in South Korea, Poland, the US and China by 2025 to nearly triple its capacity to 400GWh.

LG Energy has been criticized for its lower profit margin than CATL. The company, which suffered losses in 2019 and 2020, achieved an operating margin of just over 5 percent in the first nine months of last year, compared to CATL’s 12-15 percent, according to analysts.

“Our profitability gap with CATL will be significantly reduced,” Kwon said, predicting that the company will overtake CATL in terms of market share due to its more diverse customer base.

But LG’s expensive nickel-based batteries are facing increasing competition from less advanced but safer LFP batteries manufactured by Chinese companies, including CATL.

LG’s defective batteries which could cause fires, has forced General Motors and Hyundai Motor to make some of the industry’s most expensive recalls, raising concerns about battery safety. Kwon said the company plans to manufacture LFP batteries for some EVs.

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