LG Energy inks $3.3 bn ECV battery deal for N.America, Europe

LG Energy Solution Ltd., the world’s third-largest secondary battery maker, has inked a supply deal estimated up to $3.3 billion for North America and Europe to expand its presence in the electric commercial vehicle (ECV) sector with high growth potential.

South Korea’s top electric vehicle battery maker announced on Thursday it agreed on Jan. 19 to supply 19 gigawatt-hour (GWh) of lithium-ion battery cell modules to Freudenberg e-Power Systems (FEPS), a battery management system and battery pack maker for North America and Europe, from next year.

The capacity is enough for some 50,000 high-performance ECVs such as trucks and buses, although both LG Energy and FEPS, a subsidiary of Germany's Freudenberg Group, have yet to provide further details including the contract’s value and a specific timeframe.

The deal was estimated to be at around 3 trillion won-4 trillion won ($2.5 billion-$3.3 billion) as prices of battery modules for electric commercial vehicles are usually 50% higher than prices of such modules for passenger EVs, which are sold at some $100-$120 per GWh.

"Our partnership with FEPS will serve as a launch pad to lead in the commercial vehicle battery market which has the potential for exponential growth,” said Kim Dong-Myung, president of LG Energy’s Advanced Automotive Battery Division, in a statement.

After the announcement, LG Energy shares ended up 2.1% to 533,000 won in the South Korean stock market, outperforming a 0.8% gain in the main Kospi.

GROWTH POTENTIAL

Although the ECV market is smaller than the passenger EV sector, the ECV sector is a strategic market with high value to battery makers as such vehicles have greater battery needs and manufacturers need to secure long-term supply deals, LG Energy said. In a commercial vehicle, for example, the battery must withstand a much higher energy throughput, which can be up to 11 times that of a passenger car.

The global market of batteries for electric commercial vehicles including light commercial vehicles, medium and heavy commercial vehicles and buses was forecast to surge by more than 15 times to 574 GWh by 2030 from 37 GWh in 2022 with average annual growth of more than 40%, according to market research firm SNE Research.

In June 2022, LG Energy agreed to supply its cylindrical batteries to Isuzu Motors Ltd., Japan’s top commercial vehicle and diesel engine maker.

The South Korean company aims to expand its commercial battery business through the deal with FEPS in North America and Europe where the market is rapidly growing due to tougher environmental regulations against commercial vehicles with internal combustion engines.

To meet the goal, LG Energy, which already has standardized module lineups and various form factors such as cylindrical and pouch types, plans to provide safety diagnosis solutions through battery management system capabilities while stably managing product quality through internal development processes.

“Most electric commercial vehicles use standardized batteries,” said an LG Energy official. “LG Energy is competitive as it already secured standardized module lineups, leading the module and pack business among battery makers.”

FEPS EXPANSION

FEPS said the deal with LG Energy will allow it to expand its capacity to meet rising demand.

“The partnership with LG Energy Solution enhances our leading battery offerings for the bus and truck market,” said FEPS CEO Max Kley in a statement.

FEPS plans to integrate the battery cell modules supplied by LG Energy in their battery packs at the gigafactory in Midland, Michigan. FEPS said it is investing a further double-digit million sum to expand its battery business and capacity without further elaboration.

A battery pack, the enclosed unit that delivers power to a final product such as an EV, contains modules, a battery management system and often a cooling and heating system, depending on where and how the pack is to be used. A battery module consists of multiple cells connected in series and/or parallel, encased in a mechanical structure.

Write to Hyung-Kyu Kim at khk@hankyung.com

Jongwoo Cheon edited this article.