Another major EV-battery play that will face tough odds

Ford Motor Co. and SK Innovation Co. announced they are partnering to spend $11.4 billion on three electric-car battery plants across the United States, making it the largest investment in the automaker’s 118-year history . The deal to build the largest battery plant ever built in the US would position the South Korean firm as a leading battery maker in the US and also its largest single outlay.

All very big.

It comes at a time when US President Joe Biden’s administration is talking about electric vehicle subsidies, including tax credits. In addition, anything in the United States or with high domestic content, including battery cells, would receive more government support. It’s on top of a new national blueprint for lithium-ion batteries, making it the perfect time for blockbuster investments from Ford and SK Innovation.

However, there is much more to consider. Beyond the potential exploits the investment brings to companies, it’s worth taking a closer look at their plans and the batteries they’re promising. Through the 129 gigawatt-hours of battery annual production capacity they’ll build, firms are expected to produce 1 million power packs for sport utility vehicles and trucks (such as the all-electric F-150 Lightning pickup Biden recently announced). took a ride.)

SK Innovation has been focused on the commercialization of high-nickel content batteries or NCMs. Five years ago, SK developed the NCM811 and now the Nickel 9 battery which is 90% nickel. This, the company says, “will be mass-produced in the US, powering Ford’s F-150 Lightning.”

For starters, this type of battery has not yet been proven to be completely safe. While SK Innovation hasn’t registered fires related to EV batteries, power packs with high-nickel content — although they provide significant energy — are known to be chemically unstable and prone to combustion.

Such batteries forced General Motors Co. to recall every EV Bolt vehicle made since 2017, at a total cost of $1.8 billion to the firms involved. The cars were equipped with the NCM type made by another South Korean company, LG Energy Solutions, a unit of South Korean industrial giant LG Chem Ltd.

Nevertheless, South Korean battery companies remain on this path. That means they aren’t entirely considering cheaper, safer, and more realistic alternatives (lithium iron phosphate, or LFP, power packs that the sugar is focusing on improving).

This will set them and their auto partners on a path toward their higher electrification goals, while taking advantage of subsidies offered by the administration and adhering to tighter emissions regulations.

In recent months, the installation of improved LFP variants has increasingly outperformed NCM, running contrary to most of the market’s expectations and forecasts. Instead, SK Innovation recently signed a contract with EcoPro BM Co., a firm that manufactures and sells high-nickel parts (cathode and others) for batteries, to generate 10 trillion KRW for NCM. For 80% to 90% nickel-content products to be supplied ($8.5 billion) starting in 2024. This will cost them.

Separately, SK Innovation has faced some setbacks over its battery technology in the US, following trade secret disputes with LG Energy that risked the country’s ability to scale up production.

In April, the companies settled, with SK Innovation set to pay LG $1.8 billion in a one-time payment and an ongoing royalty. They have agreed to withdraw all pending legal disputes, saying they are “for the future of all US and South Korean electric vehicle battery industries.”

There is also commercial viability to consider. While these plans are ambitious, the cost of doing business is a reality. Although SK Innovation and its South Korean peers have focused on high-energy density power packs, which are currently a technical hurdle, these batteries are still extremely expensive and a profitable future is some time away for them.

For example, SK Innovation’s battery business posted a -26.5% operating margin in the year 2020 but is expected to remain in the “high single-digit” range after 2025, according to analysts at Daiwa Securities Group.

The high risk that should come with high risk is not on offer right now. Bigger isn’t always better, as investors and firms should know.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.