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LG & Magna Team Up To Build EV Drivetrain Components

Build it yourself or buy it from a supplier? That’s the dilemma facing car makers as the EV revolution moves forward.

LG Electronics, based in South Korea, and Magna International, a Tier One supplier to the auto industry, have joined forces in a new joint venture to manufacture complete powertrain systems for electric vehicles. Magna is an automaker in its own right. It currently has contracts to build vehicles for BMW, Daimler, Jaguar Land Rover, and Toyota and has more than 150,000 employees and 344 factories in 27 countries around the world.

Recently, Magna announced it would work with Fisker to produce its all-electric Ocean SUV, and it is building a factory in Michigan with Waymo to convert Chrysler Pacifica vans for autonomous operation. It also manufactures the I-PACE electric SUV for Jaguar. LG manufacturers much of the powertrain and dashboard components for the Chevy Bolt.

According to CNBC, the new joint venture will be known as LG Magna e-Powertrain and is valued at $1 billion. LG will own 51% of the new entity and Magna the other 49%. The transaction is expected to close in July 2021 pending LG shareholder approval, among other conditions, and will employ 1,000 people at LG locations in the United States, Seoul and China, according to a press release.

LG Magna will manufacture electric motors, inverters, and onboard chargers, according to LG Electronics. The products the new business makes may allow smaller vehicle manufacturers that don’t have the resources to develop electric powertrains for their vehicles to simply buy the components they need and insert them into their vehicles on the assembly line.

There is a growing focus on consolidation among suppliers intent on capturing a piece of the market for electric drive trains that combine motors, power controls, and axles in one unit. Earlier this year, gear maker BorgWarner acquired rival Delphi, and Japanese manufacturers Aisin Seiki, Denso, and Toyota Motor created an e-axle venture called BluE Nexus.

Gaining more control over production of the high value parts of an electric car “has always been part of the strategy as we move forward,” Magna’s incoming CEO, Swamy Kotagiri, said in a telephone interview with Reuters on Tuesday. “With combined synergies of both companies together I think we’ll be able to address not only our existing customers, but all the major audiences and preferably the new entrances looking for electric platforms.”

LG Electronics’ vehicle component business has reported losses for 19 consecutive quarters, but during an earnings call in October, the company said it expects that business to begin showing a profit in the third quarter of 2021. It had sales of $150 million in 2019, but Kotagiri told Reuters he expects a compound annual growth rate of 50% by 2025.

The new business entity between LG and Magna will sharpen concerns about whether the EV revolution will turn traditional manufacturers into little more than assemblers of parts acquired from other companies. Smaller manufacturers like Mazda, Subaru, and Mitsubishi that don’t have billions in R&D money available to develop their own electric car platforms may be thrilled that they can pick up the phone, call LG Magna, and have complete drive trains delivered to their doors. Drivers likely won’t care who makes the inverter or axle for their electric cars.

Others like Tesla are firmly committed to vertical integration, which means they design and build their own components in house where they can rigidly control the quality and cost of the finished products. Ford is working to create one or more electric cars based on the Volkswagen’s MEB chassis while General Motors announced recently it intends to produce its own motors and electric drive trains. It will be interesting to see how the in house vs outside supplier situation plays out over the next several years.

 

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Steve writes about the interface between technology and sustainability from his homes in Florida and Connecticut or anywhere else the Singularity may lead him. You can follow him on Twitter but not on any social media platforms run by evil overlords like Facebook.

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