SK Innovation To Pay $1.8 Billion To LG Energy To Avert Ban

SK Innovation To Pay $1.8 Billion To LG Energy To Avert Ban

04/11/2021

The settlement is official and ends the dispute.

The media reports about the settlement between SK Innovation and LG Chem’s LG Energy Solution were true. The two South Korean lithium-ion battery manufacturers officially announced the agreement to end the U.S. International Trade Commission (ITC) trade secret dispute and end litigation.

The main consequence of the settlement is that all legal disputes relating to EV batteries in the United States and Korea will end and SK Innovation will avert a 10-year ban in the U.S. due misappropriated trade secrets.

Both manufacturers agreed that SK Innovation will pay LG Energy Solution 2 trillion won (USD $1.8 billion) – apportioned into lump-sum payments and a running royalty. According to Reuters, SK Innovation will pay 500 billion won ($445 million) in 2021 and in 2022, as well as royalties for at least six years.

“As a result, all litigation between the companies, which began in April 2019, is resolved. In this agreement, the two companies agreed to the following terms.

  • SK Innovation will pay LG Energy Solution 2 trillion won (USD $1.8 billion) apportioned into lump-sum payments and a running royalty.
  • The companies agreed to withdraw all pending legal disputes in United States and Korea, and agreed to a ten-year non-assertion.”

The overall cost is quite substantial and can be compared to a cost of building a large EV battery gigafactory.

Let’s recall that SK Innovation is investing about $2.6 billion in two battery factories (21.5 GWh total) at a site in Commerce, Georgia:

  • the first: 9.8 GWh was expected to be ready in 2021 (mass production from 2022). According to Bloomberg, it is nearing completion and already making battery samples
  • the second: 11.7 GWh scheduled for 2023

With $1.8 billion in cash (over several years), LG Chem’s LG Energy Solution will be now in a great position to complete its $4.5 billion investment plan in the U.S. (70 GWh of annual EV battery cell manufacturing capacity).

With the two South Korean manufacturers now ready to focus on the business, and multiple other battery projects in the pipeline as well, we guess that there will be thousands of new “EV battery jobs” coming soon.

The settlement is also very important for Ford and Volkswagen, which would be both heavily affected by the SK Innovation battery ban, even despite the ITC allowed the continuation of the Ford F-150 Electric program for 4 years, and Volkswagen ID.4 (MEB) program for 2 years. Now, they can just proceed forward, without seeking a new supplier in a hurry.

We guess that the settlement is important also for the Hyundai Motor Group, and potentially other EV manufacturers, that would like to use SK Innovation batteries in North America.

Jong Hyun Kim, CEO and President of LG Energy Solution and Jun Kim, CEO and President of SK Innovation said:

“LG Energy Solution and SK Innovation have decided to settle to compete in an amicable way, all for the future of the U.S. and South Korean electric vehicle battery industries. We are dedicated to work together to support the Biden Administration’s climate agenda and to develop a robust U.S. supply chain.”

The two CEOs added, “We are grateful to the Korean and U.S. governments and stakeholders involved for their efforts in making this settlement possible.”

The two companies rather will not be friends – they are competitors in the first place – but as the official press release underlines, the will be able to “peacefully coexist in the global market”.

Here is an official statement from LG Energy Solution CEO and President Jong Hyun Kim:

“This settlement demonstrates LG Energy Solution’s willingness to protect and maintain a fair and competitive climate within the EV industry. This agreement also reinforces the significance of our intellectual property acquired over the past 30 years.”

He also stated, “LG Energy Solution is grateful to the U.S. government and stakeholders involved for their efforts in making this settlement possible. The agreement will help provide a stable battery supply chain for important partners, including Ford and Volkswagen, while also allowing SK Innovation to operate its Georgia plant undisrupted. The agreement allows the two companies to peacefully coexist in the global market and compete in good faith.”

Kim added, “As a global pioneer in the industry, LG Energy Solution will continue to make bold investments that align with President Biden’s environmental policies. The company intends to play an important role in ensuring a successful large-scale expansion of battery supplies and electric vehicles. To make this possible, the company will further accelerate its investment efforts including investing over $4.5 billion in its own U.S. business by 2025. LG Energy Solution is close to finalizing its second joint venture plant with GM.”

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