America – Essential component battleground

Picture of John Denslinger
John Denslinger is a former executive VP Murata, president SyChip Wireless, and president/CEO ECIA, the industry’s trade association. His career spans 40 years in electronics

John Denslinger investigates EV batteries and how their associated manufacturing and distribution supply chains represent new electronics industry frontier.

I n April’s editorial I discussed the ‘small but big impact’ semiconductors were having on the supply chain citing the auto industry’s predicament in particular. Later that week, arguably the largest component, the EV battery, captured US headlines as LG Chem and SK Innovation settled a bitter lawsuit involving trade secrets. The resolution was significant. At risk was a $2.6B new plant investment under construction in Georgia. It represented a key piece of national security interest: that is, building critical technology in America.

Most resident automakers (domestic and foreign based brands) entering the EV market aren’t vertically integrated with EV know-how or have the production capability to produce Li batteries in large volumes. Tesla might be the lone exception. The investment level is enormous with most automakers deciding to partner with EV battery specialists. Probably a wise move as far as shareholders are concerned.

Battery technology is one of the essential technologies of the future. Governments everywhere are trying to tilt the playing field in their direction. In the US, the Biden administration recently threatened to set aside rulings in the LG Chem vs SK Innovation case forcing both parties into a quick settlement. In Japan, more than 50 companies have drafted policy proposals for government action in the areas of raw material acquisition and recycling systems. In China, the government is only subsidizing vehicles equipped with Chinese made batteries. Each would like to dominate the market, but in the end, each will likely settle for sustainable domestic supply that fills every type of vehicle PO in local production.

At a macro level, the global EV battery market is dominated by six players. In share order they are: LG Chem, CATL, Panasonic, Samsung SDI, BYD, and SK Innovation per SNE Research through Q3 2020. One quickly notices all have Asian roots. Absent from the list is US and EU entrepreneurs.

Why does this matter? Producing an EV now requires a JV or long-term partnership with one or more large Li battery manufacturers. LG Chem touts a relationship with at least eight auto companies; CATL lists eight; Panasonic identifies four; Samsung SDI shows three; BYD supplies in-house only; and SK Innovation another six automakers. Bloomberg Green rightly points out the EV euphoria has made battery manufacturers the new power brokers in the deal.

Here’s the gotcha! Will the consumer place more value on the auto or battery brand? Will sleek designs or battery range/fast-charging rates decide the vehicle sale? We may yet see another ironic ‘Intel Inside’ co-branding battle.

Momentum is building everywhere to replace internal combustion engines with EV. California already passed legislation banning sales of new gas-powered vehicles from 2035. The Biden administration has mentioned hefty investments in federal R&D, increased federal procurement of clean energy items, and subsidy consideration on EV purchases and charging stations.

It may take years for US automakers to build their own, scalable Li battery production. Meanwhile the gap will be filled stateside by LG Chem, Panasonic and SK Innovation having invested billions already in US GWh. It’s a battleground moment. Branding recognition, national security, essential technology leadership and mountainous investment are but a few of the conflicts. Establishing a viable raw material supply chain isn’t an easy undertaking either. Nevertheless, all are solvable, but there’s no substitute for expedient action by the EV automakers and well-funded American start-ups.