LG Energy Solution: it’s spinoff time for LG Chem and battery unit

As LG Chem prepares to spin off its battery unit this week, industry analysts are watching to see the effect on a high-profile legal battle with SK Innovation, KoreaJoongAngDaily.joins.com reports.

The two Korean battery makers have been fighting for a year and a half after LG Chem reported its smaller rival to the U.S. International Trade Commission claiming theft of trade secrets in April 2019.

This legal brief will be inherited by LG Energy Solution, the spun-off battery unit, which from Dec. 1 will become a wholly-owned subsidiary of LG Chem. Its registration as a corporation is slated for Dec. 3.

In February, the commission made a preliminary ruling in favor of LG Chem, saying SK Innovation destroyed evidence. But it made the unusual move of delaying a final ruling twice. Now a ruling is expected on Dec. 10.

The ruling was first expected in early October. Every time a ruling date neared, rumors spread that the two companies were discussing a settlement.

Negotiations foundered on the amount of compensation to LG, according to local media reports. Moreover, relations between the companies went from bad to worse as court challenges proliferated. The number of law suits involving the two companies now totals more than 10.

SK Innovation has a lot at stake. A ruling against it would block exports of not only batteries but production equipment for a massive EV battery plant under construction in Commerce, Georgia.

LG Chem has explicitly expressed confidence that it will win. If the past is any clue, the ITC has never reversed a preliminary ruling in trade secret cases.

Aside from the legal challenge, many things are changing with the spinoff.

LG Energy Solution will be headed by Kim Hong-hyun. Having served as LG Chem battery unit’s president since 2018, he was appointed chief executive of the new subsidiary last week.

Kim faces big challenges in court and outside. The current goal is for LG Energy Solution to reach 30 trillion won ($27 billion) in revenues by 2024 and increase battery capacity from 120 gigawatt hours per year to above 260 gigawatt hours by 2023.

Preparations for an initial public offering, the spinoff’s main goal, are also important. It is Kim’s role to build partnerships with EV makers around the world. LG Chem currently has an order backlog worth 150 trillion won and will need to spend around 3 trillion won per year for facilities expansion.

LG Chem became the world’s top EV battery supplier for the first time between January and August. The very next month, that crown was given back to China’s CATL, the leader between 2017 and 2019. The difference in market share was not great — CATL’s 23.1 percent versus LG Chem’s 22.9 percent — but the fluidity shows how competitive the industry is and the importance of tech investments for LG Chem.

With all the tasks on Kim’s plate, including fires that broke out in vehicles with LG batteries, some analysts say it’s time the battery maker stops spending on legal battles.

There’s even the possibility of the ITC delaying its final ruling for a third time due to the ongoing Covid-19 pandemic and change of litigant following the spinoff. After a final ruling, there is a 60-day period for the commission’s order to become effective, during which the U.S. president can exercise a veto. And considering other law suits pending in U.S. courts, the LG-SK dispute may take a few more years to settle.

“It’s true that LG is at an advantage, but it’s best if the risks from the suit are cleared as fast as possible for the sake of the new entity’s growth and securing funds for investment,” said a source familiar with the battery suit.