Electric Vehicles

Huge Roadblock for U.S. Electric Vehicle Adoption Has Been Cleared

A small town named Commerce, Georgia, is about to become the electric vehicle battery manufacturing capital of the country.

SK Innovation (KRX: 096770) is a large South Korean energy and chemical company. It operates globally in four segments: lubricants, petrochemicals, petroleum and others. And “others” includes lithium-ion batteries.

Much to the delight of Commerce residents, SK Innovation chose the town for the site of its new $2.6 billion EV battery manufacturing facility. When finished, the plant will provide 2,600 new jobs.

Gov. Brian Kemp called the new factory one of the biggest job-creating investments in Georgia’s history.

But the whole deal almost went bust. Here’s what happened.

Battle of Two Giants

Back in 2019, LG Chem (KRX: 051910), another South Korean company and a competitor of SK Innovation, filed a formal complaint with the United States International Trade Commission. It alleged that SK Innovation stole trade secrets from it when SK Innovation hired 80 of LG Chem’s key employees.

In 2020, a judge ruled in LG Chem’s favor. The judge found that SK Innovation destroyed some documents related to the case.

As a result, SK Innovation threatened to stop work on its Commerce factory. This hubbub caught the attention of U.S. Trade Representative Katherine Tai. And this past Sunday, both Tai and federal officials pressured the two companies to settle.

Commerce officials were elated. SK Innovation said it will pump another $2.4 billion into an expansion of the factory by 2025. Even better, it will hire an additional 3,400 workers to run the factory.

Ford Motor Company (NYSE: F) and Volkswagen (OTC: VWAGY) were happy too. They both have big contracts with SK Innovation for EV battery packs.

As part of the settlement, SK Innovation agreed to pay about $1.8 billion in cash and royalty fees to LG Chem. Both companies agreed to drop all litigation.

LG Chem is free to pursue EV battery business in the U.S. as well. It has an EV battery joint venture with General Motors (NYSE: GM).

The joint venture, Ultium Cells LLC, is building a $2.3 billion EV battery factory in Lordstown, Ohio. And now the two are talking about building another similarly sized battery plant somewhere in Tennessee.

The U.S. EV Supply Chain

The agreement between SK Innovation and LG Chem doesn’t just resolve their differences. It also paves the way for the expansion of the U.S. EV supply chain.

That’s important for several reasons. Today, reducing the cost of EV batteries is crucial to lowering the overall cost of EVs.

Manufacturing them in the U.S. reduces shipping costs at a time when international shipping is a mess. It also reduces reliance on foreign suppliers.

And making batteries here supports our domestic auto manufacturers. They all have ambitious plans to electrify their model lineups over the next several years.

It is also good for our economy. These plants are going to provide tens of thousands of new jobs across several states.

But this is only the beginning. We need more than just attractively priced EVs to woo potential customers. EV owners need access to charging points for widespread adoption.

The current U.S. infrastructure bill includes funding to build 500,000 new charging points. EV charging has to be as easy and convenient as “gassing up” is today for internal combustion engine vehicles.

I’ve been following this sector for 10 years, and I’ve never been more excited about its future prospects. The recent settlement between SK Innovation and LG Chem is a win for the companies, Commerce and the U.S. EV supply chain.

As U.S. EV infrastructure continues to build out, there will be plenty of opportunities for investors.

The EV sector’s biggest days are still ahead.

Good investing,

Dave

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