LG New Energy is about to IPO, valuation is close to 60 billion U.S. dollars after listing.
The combination of battery raw materials is the key, one of the largest electric vehicle battery companies in the world is about to go public.
South Korea’s LG Energy Solution, which produces battery packs for manufacturers such as General Motors Co., is seeking to raise up to US$11 billion through a listing, and the company’s valuation may be close to US$60 billion. Although the company is large, aggressive and promising, investors still need to watch carefully.
Advantages
For strong fund managers, especially those who want to fulfill their ESG investment fiduciary responsibilities, LG New Energy’s IPO has all the characteristics of a perfect investment.
It has the support of a mature Korean conglomerate that covers businesses ranging from chemicals to electronics, which can ensure its position in the industry when the supply chain is tight.
It has many customers (mainly automakers) who have no bargaining power, a large number of pending orders, and most importantly, it has battery technology.
In terms of production capacity, LG New Energy accounts for more than one-fifth of the global market, second only to Chinese battery giant CATL.
But some doubts should be made. One of LG’s major advantages lies in its mastery of technology and the ability to rapidly scale production. However, unlike CATL, it has not been able to turn this into huge profits. Both 2019 and 2020 are losses.
The operating profit margin of the first nine months of this year is slightly higher than 5%, while the operating profit margin of CATL is between 12% and 15%. Its main battery product: nickel-cobalt-manganese ternary lithium battery, or NCM712-has higher energy density and higher price than the currently widely used lithium iron phosphate power battery (one of CATL’s main products).
Disadvantages
However, the company has not been able to take full advantage of its ability. This has cast doubt on its ability to execute business plans and lead the fast-growing electric vehicle market.
The second is battery chemistry. Lithium iron phosphate battery is a battery type that LG New Energy has only recently begun to develop. It is safer but not advanced.
Although this battery has been able to seize share from the market of nickel-cobalt-manganese ternary lithium batteries this year, the medium-term prospects are not optimistic for LG New Energy to produce such batteries.
The company has not put into production other battery varieties, unlike CATL that produces both. Only in recent months have there been some reports that LG New Energy may also start producing lithium iron phosphate batteries.
Investors are pinning their expectations on the explosive growth of the battery industry as a whole-but in the current industry cycle, battery varieties are the most important.
The suspicion of certain nickel-cobalt-manganese ternary lithium batteries partly stems from LG’s own problems: defective batteries may cause fires, forcing General Motors and Hyundai Motor Co. to recall recently produced electric vehicles. These are among the most expensive accidents of electric vehicles at present, and people have begun to pay attention to battery safety issues.
Large-scale recall
In addition to the concerns surrounding high-nickel lithium batteries, LG is also facing the cost of a large-scale recall, and there are more than 1 billion US dollars to digest. It cannot mean that the problem has been resolved just because it no longer appears in news reports and it is a one-time expenditure.
As Smartkarma analysts said, accounting for costs will not allow “controversies about the appropriate level of recall provisions… to dissipate.” The analysts wrote that the amount of provisions announced by General Motors is very different. This will be a hidden danger.
All of this will depend on the company’s ability to cheer up and make effective use of future needs. It is the future performance of this company that gives investors high hopes. Of course, it should not be forgotten: Although it is important to master all the raw materials, how to put them together is the key
