LG Chem, Huayou Cobalt to build $920 million battery precursor plant

LG Chem and Zhejiang Huayou Cobalt will together invest 1.2 trillion won ($920 million) to build a battery precursor plant in Gunsan, North Jeolla, to reinforce its supply chain in the face of surging demand for electric vehicles.

The view of Saemangeum, a reclaimed area on the country's southwest coast, in which LG Chem will build its battery material plant. [LG CHEM]

LG Chem and Zhejiang Huayou Cobalt will together invest 1.2 trillion won ($920 million) to build a battery precursor plant in Gunsan, North Jeolla, to reinforce its supply chain in the face of surging demand for electric vehicles.

The Korean company said Monday that the executives of the two parties are scheduled to sign a memorandum of understanding (MOU) on April 19, though the breakdown of the investment has not yet been decided.

The plant, which will be located in Saemangeum, a reclaimed area on the country's southwest coast, will have an annual production capacity of 50,000 tons by 2026.

The capacity will increase to 100,000 tons by 2028, equivalent to powering about 1 million electric vehicles.

Ground will be broken within the year.

Precursors are raw materials used to make cathodes and are produced by combining materials such as nickel, cobalt and manganese. They account for 70 percent of the cost of cathodes, the material that accounts for 40 percent of battery costs.

The latest plant will up the Korean company’s precursors production capacity to 70,000 tons. LG Chem is currently building a 20,000-ton precursor factory with Korea Zinc in Ulsan, which will start operating in the second quarter of next year.

"Based on the Saemangeum facility, LG Chem will continuously strengthen its stable supply chain of cathodes," LG Chem CEO Shin Hak-cheol said Monday.

The possible cooperation is part of LG Chem’s latest efforts to reduce its dependence on China to qualify for up to $7,500 in subsidies the U.S. government offers to electric vehicles that are assembled in North America.

Under the newly announced rules of the Inflation Reduction Act (IRA), in order to qualify for $3,750 of the credit, 40 percent of the critical-mineral value of the vehicle’s battery has to come from the United States or countries with which the United States has signed free trade agreements.

A vehicle will be eligible for the credits when over 50 percent of the critical-mineral value of the electric vehicle comes from either extraction or processing of the critical minerals.

That means that a vehicle will still be eligible for the incentives if LG Chem will be able to produce the precursor in Korea, though the minerals themselves are from China.

In a similar move, Korean battery maker SK On announced in March that it will build a 1.21 trillion-won manufacturing facility in Saemangeum in a joint project with local materials producer EcoPro and China's Green Eco-Manufacture.

Of all precursors used in Korea, 95.3 percent were imported from China last year, according to data from the Korea International Trade Association.

BY SARAH CHEA [chea.sarah@joongang.co.kr]