LG Energy Solution Slows Construction of Michigan Plant with GM Amid Weak EV Demand and Political Uncertainty
LG Energy Solution Ltd., a South Korean battery manufacturer, is decelerating the development of its third plant in Michigan in collaboration with General Motors Co. due to tepid demand for electric vehicles (EVs) and concerns about potential shifts in U.S. political landscape. The company clarified that it is not halting construction but is "adjusting the speed of overall investment" and exploring methods for flexible plant operation, according to a message sent to Bloomberg News.
LG Energy Solution and GM initiated the plant’s construction in 2022, committing around $2.6 billion, with the intention of commencing operations in the first half of the following year. However, several factors are pushing battery manufacturers, including LG, to recalibrate their strategies. Globally, the sector is grappling with reduced sales due to waning consumer interest in EVs. Additionally, upcoming U.S. elections add another layer of uncertainty for Korean companies that invested heavily in the region following President Joe Biden's clean energy incentives aimed at boosting local EV production and minimizing reliance on Chinese suppliers.
Political Risks and Financial Pressures
Former President Donald Trump has pledged to revoke the Inflation Reduction Act (IRA) and reverse Biden's supportive policies for EVs if re-elected, posing a significant risk for businesses that have geared their investments towards these incentives. LG’s CEO Kim Dong Myung acknowledged the need to "adjust the speed of investments" and urged employees to consider enhancing investment flexibility and efficiency.
General Motors, aiming to qualify for IRA tax credits through the establishment of three plants with LG in the U.S., is also tempering its EV ambitions. CEO Mary Barra recently conceded that the company will not meet its goal of producing one million EVs by the end of next year, a target previously set by GM.
Concerns Across the Industry
LG is not alone in facing these challenges. The broader battery manufacturing sector is feeling the strain. Samsung SDI Co., a key supplier for BMW AG and Stellantis NV, has described the situation as "a new crisis." Samsung SDI is involved in multiple plant projects in Indiana and has ongoing commitments with Stellantis and GM. Meanwhile, SK On Co., another major South Korean cell maker, has declared an emergency following significant financial losses in the first quarter. This company serves as a supplier to Ford Motor Co. and Hyundai Motor Co. and is part of SK Innovation Co., which is exploring ways to enhance SK On's competitiveness.
Potential Strategic Shifts
SK On operates two plants in Georgia and plans another in the state through a partnership with Hyundai. It also has plans for three additional facilities with Ford in Kentucky and Tennessee, funded by Biden’s administration. Yet, the launch of the second Kentucky plant has been postponed by Ford due to the slowdown in EV sales.
A report from the Korea Institute for Industrial Economics & Trade in June suggested that Korean battery manufacturers might reconsider or reduce their U.S. investment plans if the IRA policies are subjected to significant changes following the U.S. presidential election.