Ultium Cells terminates $1 bn contract with YoulChon Chemical

YoulChon Chemical Co. CI

The ongoing slump in electric vehicle (EV) demand is affecting not only EV battery suppliers but also battery component manufacturers.

YoulChon Chemical Co. announced on Wednesday the termination of a supply contract worth 1.49 trillion won ($1.08 billion) with Ultium Cells LLC, a joint venture between LG Energy Solution Ltd. and General Motors Co.

The contract, intended for the supply of aluminum pouches for lithium-ion battery manufacturing, was equivalent to 358.8 percent of YoulChon Chemical’s annual sales in 2023.

YoulChon Chemical was initially scheduled to supply the aluminum pouches from January 1 in 2023 to December 31 in 2028.

Industry insiders expect significant repercussions across the sector, including parts suppliers, as domestic battery producers continue to suffer from the sluggish EV demand.

LG Energy Solution, which announced its earnings last week, has adopted a cautious stance by lowering its sales target for this year and the anticipated benefits under the U.S. Inflation Reduction Act (IRA).

The company, in particular, announced plans to adjust the pace of its construction of new battery plants and reduce battery production to respond to market volatility.

Such decisions by battery production companies are expected to directly hit related parts suppliers and secondary subcontractors.

Ultium Cells’ termination of the contract with YoulChon Chemical, a major partner of LG Energy Solution, is seen as an indicator that these concerns could materialize across the industry.

Focus is on how long the market downturn will last.

According to industry sources, the completion of Ultium Cells’ third plant in Michigan, the United States, is also expected to be delayed.

Insiders noted that adjustments in the construction pace are inevitable.