LG Energy Solution, the world’s second largest electric vehicle battery maker, prepares to sell $ 11 billion

The Tesla, Ford and Volkswagen supplier plans to use the proceeds of the IPO to acquire Contemporary Amperex Technology (CATL), the world’s largest battery company valued at more than $ 196 billion.

LG Energy will offer 34 million new shares in a range of 257,000 to 300,000 won per share. At the top of the price range, the group will have a market value of 70.2 trillion won (59.4 billion US dollars), making it the third most valuable company in South Korea after chipmakers Samsung Electronics and SK Hynix.

Analysts expect the January 14 IPO to be at the high end as investors look to the rapid growth of the global EV market. Trading is scheduled to begin on January 27th.

“We have a wider customer base, not just in China, but also in the United States and Europe, while CATL’s growth has mainly been driven by Chinese automakers,” said Kwon Young-soo, the company’s chief executive officer, told the online press conference on Monday .

Analysts say the valuation may be underestimated. According to SNE Research, LG Energy controls 20.5 percent of the global EV battery market, lagging behind CATL’s 31.8 percent.

“We believe the company is well positioned to be the leading battery manufacturer outside of China, but investors need to weigh the risk of recall and increased competition from LFP [lithium-iron-phosphate] short-term, “said Bernstein analysts in a Monday report.

LG Energy is a wholly owned unit of LG Chem, South Korea’s largest petrochemical company, and supplies automotive manufacturers around the world.

The company plans to invest around 8.85 tons in its battery plants in South Korea, Poland, the United States and China by 2025 to nearly triple its capacity to 400 GWh.

LG Energy has been criticized for its lower profit margin than CATL. The company, which suffered losses in 2019 and 2020, achieved an operating margin of just over 5 percent for the first nine months of last year, compared to CATL’s 12-15 percent, according to analysts.

“Our profitability gap with CATL will narrow significantly,” said Kwon, predicting the company will overtake CATL in terms of market share given its more diverse customer base.

However, LG’s expensive nickel-based batteries are facing growing competition from less advanced but safer LFP batteries made by Chinese companies like CATL.

LG’s dead batteries, which could start a fire, have forced General Motors and Hyundai Motor to launch some of the industry’s most expensive recalls, raising battery safety concerns. Kwon said the company plans to make LFP batteries for some electric vehicles.