Hyundai Plans To Produce Its Own LFP Batteries By 2024 As Global Competition Increases

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The Korea Herald reported on November 6, 2023 that Hyundai is working with several companies and educational institutions in South Korea to develop and manufacture its own LFP (lithium iron phosphate) batteries by the end of 2024. What is surprising about this announcement is that, up until now, Hyundai has been content to get the batteries for its electric cars from outside suppliers — usually South Korean companies like LG Energy Solution and SK On, but also CATL, the largest battery manufacturer in the world.

According to media reports, the collaboration with smaller Korean battery makers started this year and is expected to result in the production of the first products from a pilot production line by the end of 2024. The batteries will be installed in Hyundai and Kia entry level and mid-priced electric cars beginning in 2025.

A Hyundai Motor Group official declined to comment, but told the Korea Herald, “We are looking into working with small battery makers as well as large companies (like LG Energy Solution, Samsung SDI, and SK On) here in Korea.” The goal of the collaboration is to produce LFP batteries with an energy density near 300 watts per kilogram. Ultimately, the company wants LFP batteries that are competitive with NCM batteries

Hyundai Distancing Itself From China On Batteries

Industry insiders say the carmaker’s bold move to make its own batteries comes after it decided to distance itself from Chinese battery makers in producing less costly electric cars. The deepening tech trade war between China and the US and Europe has put Hyundai under pressure to join the push to find alternatives to Chinese-made batteries. Part of that relates to meeting the requirements of the Inflation Reduction Act, which mandates that battery materials and components be sourced from countries other than China in order to qualify for US tax incentives.

“With prolonged economic slowdown and high inflation, customers who are interested in electric cars are eyeing entry level and less pricey EVs,” said Lee Ho-geun, a car engineering professor at Daeduk University. “Like the world’s top EV makers Tesla and BYD, if Hyundai develops more EV batteries, it can boost production and cut the overall costs.”

In June, Hyundai Motor Group CEO Chang Jae-hoon unveiled an investment plan worth 9.5 trillion won ($7.3 billion) for battery development and technologies over the next 10 years. Chang vowed that the company will jointly develop LFP, NCM, and solid-state batteries in cooperation with battery manufacturers and academic institutions. For research and development of lithium-ion and next generation solid-state batteries, Hyundai plans to work with two American companies, Solid Energy System and Solid Power.

China Responds

Breaking China’s position as the dominant manufacturer of batteries — including materials and components — will be an uphill battle. Chinese electric vehicle manufacturers are becoming major export players in an effort to find new markets for their products. The West’s efforts to protect its own markets might prove too little, too late, according to the Wall Street Journal.

Chinese firms are eyeing big new factory expansions in Europe and in countries that are US free trade partners as a way to sidestep current and future import restrictions. That is very much like the strategy Japanese automakers adopted in order to crack the US market in the 1980s.

Sales of what China calls new energy vehicles, which includes plug-in hybrids, surged 37% year-over-year in China in the first nine months of 2023, according to the China Association of Automobile Manufacturers. But exports have increased sharply. In fact, China is now the world’s top exporter of electric cars. That export expansion is helping China’s battery industry. CATL and BYD are now the top two producers of EV batteries in the world.

Overseas sales could become more important to Chinese manufacturers of batteries for electric cars as domestic competition intensifies. Chinese battery companies enjoy significantly higher margins abroad, according to Goldman Sachs. For example, the bank expects around 70% of the earnings of Gotion, a Chinese company that supplies batteries to Volkswagen, to come from exports or overseas production by 2025. Its factory in Germany started production this year and it is building a $2 billion battery factory in Illinois. But another proposed factory in Michigan has stirred up a hornet’s nest of opposition

Batteries & Geopolitical Risks

Geopolitics are a big risk for Chinese battery manufacturers. The IRA mandates that subsidized EVs use batteries with a certain proportion of content from the US or from recognized free trade partners. The European Union has launched an anti-subsidy probe into EV imports from China and set a target of making 40% of clean tech domestically by 2030.

China’s battery industry is already trying to sidestep these restrictions. Chinese firms have announced overseas investments of more than 200 billion yuan ($27 billion) in batteries and materials, more than 80% in Europe, according to Goldman Sachs.

China’s battery race abroad won’t be free of potholes, but its battery companies are ready to drive around them. In the long run, Chinese battery know-how could filter out into European suppliers and help build a local ecosystem, much like Tesla and Apple helped level up China’s EV and smartphone sectors, the Wall Street Journal says.

A $57 Trillion Opportunity

The stakes in this international tussle to see who will rise and who will fall in the race to make the batteries that will power the EV revolution are enormous. BloombergNEF forecasts the total value of all forms of electric vehicle sales will hit $8.8 trillion by 2030 and $57 trillion by 2050. That’s according to its base case scenario. If the world transitions away from combustion engine vehicles more quickly, that number jumps to over $88 trillion by the middle of this century.

The transition to electric vehicles is reshaping economies and challenging political allegiances around the world, says BNEF. “The automotive sector is a major source of manufacturing jobs, R&D investment, and innovation, but not everyone is going to make this transition smoothly,” according to Colin McKerracher, head of transport and automotive analysis at BNEF. “It’s all up for grabs, and nobody wants to be left behind.”

The Takeaway

Hyundai is charting a course toward possibly making more of the batteries it needs internally. Tesla has been the poster child for the power of vertical integration and other companies are taking notice of how well that has worked. But even Tesla depends primarily on outside suppliers like Panasonic and CATL for its batteries.

Change always benefits some and not others. It is almost impossible to predict how the geopolitics of electric vehicles and batteries will shake out over the next six years. The only thing we can be relatively certain of is the results will probably be surprising. Who would have guessed in 2010 that batteries would become such a dominant force in the global economy?

There are reports all over the news that the EV revolution has stalled, but nobody has told that to the battery manufacturers, which have trillions of dollars at stake. If you want to know where the EV revolution is headed, look to the battery industry for clues. Those are the people who are looking three to five years down the road and placing multi-billion bets on the future.