HOLLAND — Reports this month that LG Chem plans to build a second U.S. lithium-ion battery plant underscore how much the automotive industry has evolved in the six years since the company started making advanced batteries in West Michigan.
Automotive analysts also expect that evolution to pick up in pace: IHS Markit projects 247 models of battery-electric vehicles will be on sale in the U.S. market by 2026, up from just 40 nameplates currently.
The ambitious projections stem from global automakers’ continued investments in electric vehicles, even in the face of skeptical consumers who have been slow to embrace the technology because of the sparse charging infrastructure and concerns over so-called “range anxiety.”
“You’d be hard-pressed to find an automaker who isn’t planning 10 or 15 or more electric vehicles just in the U.S.,” said Mike Wall, director of automotive analysis in Grand Rapids at IHS Markit. “2026 is not that far away, really, in the span of automotive and fixed investment and heavy capital investment.”
In 2018, new registrations of electric vehicles reached 208,000 units, more than double from the prior year, according to research this spring from IHS Markit. The Southfield-based firm projects that growth to continue accelerating in the years ahead, with 350,000 EV registrations in 2020, or 2 percent of the overall market, ballooning to 1.1 million units just five years later for a 7-percent share.
Expansion plans from battery companies like LG Chem come in reaction to these growth projections and as a result of pressure from automakers, who are racing to meet tightening federal fuel efficiency standards.
On July 11, Reuters cited unnamed sources in reporting that LG Chem was considering investing $1.7 billion to build a second U.S. lithium-ion battery plant to serve growing demand from Volvo and Fiat Chrysler Automobiles, among other automakers. The report said the company was considering a range of sites for the plant, including locations in Kentucky and Tennessee.
Jennifer Owens, president of Zeeland-based Lakeshore Advantage Corp., an economic development organization for Ottawa County, declined to comment on whether she was working with LG Chem on any expansion sites in West Michigan.
Regardless of whether any expansion plans are in the works for West Michigan, Owens considers the growth “a good sign” for the local operations. LG Chem has grown its workforce to employ more than 900 people at its sprawling plant in Holland, which came online in 2013 and supplies batteries to a range of vehicles, including the Chevrolet Volt.
“Their current North American lithium-ion battery (production), they’re at full capacity,” Owens told MiBiz. “I think that means great things for us that the company is continuing to invest, wherever it is in North America, and that the demand and the capacity for their product continues to grow. We’re very appreciative of how much they’ve already done in our community.”
IHS Markit’s Wall believes the battery maker likely will feel the pull to locate the plant “in the lower Midwest or the South,” in close proximity to many of the newer automotive assembly plants.
“I think there’s going to be a fair amount of competition for it, but the fact that we’ve got some installed capacity certainly doesn’t hurt in that conversation,” Wall said of West Michigan’s chances to land another battery plant.
Regardless of where LG Chem ultimately decides to locate its new facility, Wall also expects the company will continue to make “incremental investment to grow or create additional sustainability” at the Holland plant.
“That facility has evolved into a really good plant for them, and the fact that they are out there continuously courting new job candidates and courting the labor market, I think that certainly is a good thing as well,” he said.
Seeking sustainability
While LG Chem has invested in expansions and hired hundreds of new employees in recent years, the early days of the company’s operations in West Michigan were fraught with slow demand.
A little more than six years ago, a federal report excoriated LG Chem for using government funds to pay idled employees at its plant in Holland to perform non-work related tasks, including playing board games, watching movies and volunteering at Habitat for Humanity and local animal shelters.
The company, which accepted $150 million in American Recovery and Reinvestment Act (ARRA) funding for the $304 million plant, eventually paid back $842,000 related to the misuse of funds, according to a 2013 report from the Office of Inspector General at the U.S. Department of Energy.
At the time, LG Chem was part of a wave of more than $1.1 billion in announced investments in advanced battery production just in West Michigan, spurred on by generous federal and state incentives in the years following the depths of the Great Recession.
The investments also included Johnson Controls Inc.’s Meadowbrook plant in Holland, which began producing lithium-ion batteries in 2010. The company has since sold off its Power Solutions division to Toronto-based Brookfield Business Partners LP in a $13 billion deal backed by Canadian institutional investors. At the close of the transaction on April 30, the division was renamed Clarios Power Solutions, which continues to operate the Meadowbrook plant.
While the suppliers initially struggled to meet their growth targets because of slow demand for the batteries, their business has been buoyed in recent years by the continued electrification of vehicles in a move to meet tightening fleetwide fuel economy standards, according to Wall.
“When automakers are saying we need battery capacity and we need it now, that’s what makes this, hopefully, maybe a little less of a flier,” he said. “We remember those days when those plants were not heavily utilized and we weren’t sure how sustainable it was going to be. Now, flash forward and with a mix between full electric and hybrid vehicles, these models actually are coming to fruition.”
Opportunity knocks?
The growth of the advanced battery industry, coupled with projections for accelerating demand, could spell additional opportunities for West Michigan-based suppliers, many of whom were early adopters to serving the niche automotive sector.
“Initially, (LG Chem) really sourced most of the raw material from Korea, but now they’re very much looking at trying to source as much as they can locally,” said Owens at Lakeshore Advantage. “We’ve had several small to mid-sized manufacturers receive significant contracts from LG just over the last couple of years. The company, I believe, is at the point now where they’re very comfortable with the production of the product and now can look at different forms of supply chain versus trying to import all the materials.”
That’s good news for suppliers looking to diversify their product mix, according to Wall.
“The suppliers that I’m talking to are talking a lot about trying to build in as much flexibility in their operations as possible, (in case) there is a soft patch,” he said, citing easing automotive sales in North America. “This is a time where a lot of suppliers are still kind of getting their sea legs with some of the tariffs and trade side. (They’re) trying to manage through that and are working through these launches.”
At the same time, suppliers need to leverage their business with traditional internal combustion engine powertrains to support some of the R&D and production work needed to jump into lower-volume electric vehicles, Wall said, noting traditional powertrains are expected to remain a large, profitable market segment for the foreseeable future.
“You make your money on the internal combustion engine vehicles, pickup trucks and SUVs, whereas all or much more of your capital investment is going towards electrified, which is going to be tougher to make that margin on because it’s so heavily capital intensive,” he said. “(Suppliers need) to make sure when they’re going after new business, they’re going after profitable business rather than just business to fill the plant. That, I think, is going to be the name of the game.”
