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South Korean rivals LG Energy Solution and SK Innovation inked a
last-minute deal 11 April in their long-running electric vehicle
(EV) battery intellectual property dispute, negating a February US
trade court ruling and sparing President
Joe Biden a difficult decision.
The companies agreed to settle all legal disputes in both South
Korea and US after discussions ahead of an 11 April deadline for
Biden to overturn the US International Trade Commission (ITC)
ruling via presidential veto. The agreement also offers a lifeline
to SK Innovation plans to build battery factories in the US while
also saving automakers Ford and Volkswagen plenty of heartburn
too.
SK Innovation will also pay LG Energy Solution 2 trillion won
($1.8 billion) in the form of lump-sum payments and a royalty,
after entreaties from US political figures, including Senator Jon
Ossoff, Democrat-Georgia, led to company representatives burning
the midnight oil into the early hours this past weekend to overcome
a gap between their positions.
The talks followed an ITC decision based on a petition from LG
Energy Solution. LG Energy Solution said SK Innovation stole trade
secrets its rival had developed for the battery manufacturing
process by hiring dozens of key engineers and other employees.
As a remedy, the ITC said SK Innovation could not ship
components to the US to manufacture its batteries but instead would
have to find domestic suppliers — conditions that battery
market analysts say would be difficult if not impossible to
meet.
That put at risk an SK Innovation battery factory in Commerce,
Georgia. In March 2019, SK Innovation broke ground in Georgia on a
factory that would manufacture 9.8 GWh/year of batteries for EVs,
and the same year announced plans for a second even bigger plant in
the state.
SK Innovation said in a statement 10 February the plants would
not go ahead if aid was not forthcoming from the White House.
IHS Markit Senior Analyst Chloe Holzinger said the deal was
positive for the growing US EV industry, as it removes much of the
doubt around the Georgia plant, but the focus would now shift to
how the payout would affect SK Innovation's battery costs and
long-term expansion plans.
Biden dodges a bullet
The deal meant Biden was able to thread the needle on several
key issues simultaneously: thousands of jobs in a state where the
electorate is split evenly between Democrats and Republicans; not
undermining intellectual property rules; his electrification of the
transportation sector plans; and the needs of the US energy
transition supply chain.
As a result, Biden was fulsome in his praise for the compromise.
"This settlement agreement is a win for American workers and the
American auto industry. A key part of my plan to Build Back Better
is to have the electric vehicles and batteries of the future built
here in America, all across America, by American workers," he said
in an 11 April statement.
The deal also found favor with Biden's South Korean counterpart,
President Moon Jae-In, who tweeted: "The agreement between the two
companies is very meaningful in that it is in line with both
national interests and the long-term interests of individual
companies that domestic industrial ecosystem members compete and
collaborate based on mutual trust."
World leaders are worried about their supply chains as the
electrification boom gathers pace, particularly in power generation
and transportation. The Biden administration on 24 February said it
would review key US supplies, involving EV batteries, to ensure
other countries cannot weaponize them against the US.
"Remember that old proverb," Biden said in February when he
signed the executive order to review supply chain issues. "'For
want of a nail, the shoe was lost. For want of a shoe, the horse
was lost.' And it goes on and on until the kingdom was lost, all
for the want of a horseshoe nail. Even small failures at one point
in the supply chain can cause outside impacts further up the
chain."
Biden re-emphasized this concern in his 11 April statement,
saying: "We need a strong, diversified and resilient US-based
electric vehicle battery supply chain, so we can supply the growing
global demand for these vehicles and components - creating
good-paying jobs here at home, and laying the groundwork for the
jobs of tomorrow."
It was a position that found support from LG Energy Solution,
with CEO Jong Hyun Kim noting in the statement announcing the end
to the dispute and impasse that the company was making investments
that aligned with Biden's environmental policies.
In March, the company announced plans to invest $4.5
billion through 2025 in new US production facilities, which it
said will create 10,000 clean energy jobs and drive down the cost
of EV and energy storage facilities.
The investment would increase the company's US battery
manufacturing capacity by nearly 70 GWh compared with previously
announced plans for its own production facilities and a joint
battery venture with General Motors to supply the automaker's drive to expand its EV
offerings in the next few years.
Automakers' ambitions
GM rivals Ford and Volkswagen are also ramping up their EV
ambitions, plumping for SK Innovation as their battery supplier,
with the former supporting SK Innovation in its fight at the ITC,
arguing that battery suppliers must be selected at least four years
before the launch of a product, and that batteries are developed
for specific vehicles.
SK Innovation's batteries are set to support Ford's plans to
produce an electric version of its best-selling F-150 truck in
addition to supplying VW's planned EV plant in Chattanooga,
Tennessee.
Responding to the deal involving its battery supplier, Ford said
it was pleased SK Innovation and LG Energy Solution had settled
their differences.
Volkswagen Group of America CEO Scott Keogh also expressed
support for the agreement and praised the Biden administration's
role in bringing an end to the dispute. "We would like to thank the
Office of the United States Trade Representative and the [Biden
administration] for their role in bringing this issue to a
successful resolution," he said in a statement.
Investors were also supportive of the deal 12 April, with SK
Innovation shares opening 15.7% above their 9 April close and
closing 11.7% higher day on day. The share price of LG Energy
Solution parent LG Chem opened 4.1% higher 12 April, although it
finished the session only 0.6% higher day on day.
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