LG Chem & SK Innovation Are Locked In A Cage Fighting Match That Could Destroy Them Both

South Korea’s two largest battery manufacturers, LG Chem and SK Innovation, have locked horns in a legal battle in the United States. LG Chem alleges SK Innovation poached a number of its top battery technology specialists. SK Innovation vigorously denies the allegations. Both are asking the US International Trade Commission to bar the other from supplying batteries to Volkswagen, GM, Ford, Jaguar, Audi, and KIA.

Image courtesy of LG Chem

“Whoever loses the fight would suffer a fatal blow, unless the two reach a settlement. This will also be a setback for automakers,” Cho Jae-phil, a professor at Ulsan National Institute of Science and Technology, tells Reuters. The stakes couldn’t be higher.

Reuters reports that SNE Research, which tracks the South Korean battery industry, claims the market for EV batteries is set to grow 23% a year and will reach $167 billion annually by 2025. In comparison, the global market for computer memory chips is expected to be worth $150 billion by then.

SK Innovation shocked the industry when it won the contract to supply batteries to Volkswagen for the electric cars it will build at its new EV factory in Chattanooga and Germany. After it got the contract, SKI broke ground for a new battery factory in Georgia that will be about 150 miles away from Chattanooga and another in Hungary.

LG Chem has leveled several accusations of bad faith against its rival, claiming it won the VW contract fraudulently by using trade secrets purloined from LG Chem by employees who left to join the smaller company. The Commission is expected to make a preliminary ruling in June and issue a final decision next October.

But already the staff at the ITC seem to be siding with LG Chem. Last week, Reuters obtained a memo from the Commission’s investigative staff suggesting a ruling in LG Chem’s favor would be “the most appropriate sanction for Respondents’ (SKI’s) widespread spoliation of evidence.” Evidence spoliation is destruction or alteration of evidence that may be used in a legal proceeding. The staff also said a two-day hearing may be held “because of the severity of the allegations of misconduct and the extraordinary nature of the relief requested by (LG Chem).”

More Than A Lawsuit

This is more than a lawsuit between rivals. While the two companies trade blows in court, the EV revolution is ramping up. The dispute puts battery supply chains at risk for a number of companies, but especially Volkswagen, which has launched a $50 billion initiative to bring electric cars to market. LG Chem has issued a statement arguing it would impossible to design around its patents while SK Innovation says losing the patents case could create “substantial setbacks” to its battery business. Both companies have also filed suit against each other in South Korea.

The South Korean government is worried the accusations and counter-accusations will damage the reputation of both companies and let rivals take market share away from South Korean industry in general. Local lawmakers are urging the government to intervene to resolve the dispute.

Beejay Kim, a battery consultant, tells Reuters that Volkswagen may have to broker a truce between the two companies as the dispute could not only disrupt its supply of batteries but also reduce competition between its vendors. “No one wants them to fight till the end,” Kim says.

It is unconscionable that the International Trade Commission should need 18 months to render a decision. This dispute needs a speedy resolution to avoid damaging the transition to electric vehicles which is so vital to the fight against an overheating planet. Not only that, it gives ammunition to the fossil fuel companies which are looking for any avenue to sow fear, uncertainty, and doubt about electric cars. The companies need to find a way forward that recognizes the needs of society as well as their pecuniary interests.