LG Chem announced Thursday its first joint venture with China’s No. 1 automaker Geely Auto Group for the production of electric vehicle batteries, with a plan to secure capacity of 10 gigawatt-hours by late 2021.

The South Korean battery manufacturer said it signed a contract with the Chinese automaker on the establishment of the joint venture, with an equal amount of financial investments from each company, at Geely’s research center in Ningbo, Zhejiang province, on Wednesday.

Under the contract, LG and Geely will contribute 103.4 billion won each to construct an electric vehicle battery production facility with annual capacity of 10 GWh by 2021.

The factory is scheduled to break ground at the end of this year. The site of the facility and official name will be confirmed later.

Batteries manufactured at the joint venture’s plant will be supplied for electric vehicles produced by Geely and its affiliates, which are slated for launch in China starting 2022.

The Chinese group owns Volvo from Sweden, Lotus Cars from the United Kingdom and Proton from Malaysia.

Geely plans to convert 90 percent of its commercial automobiles into battery-powered cars from next year. The company was the largest vehicle provider in the Chinese domestic market, selling 1.5 million cars in 2018. 

“The latest partnership meets both companies’ interests,” an official at LG Chem said. “While LG needs to enter the Chinese market, Geely has the need for stable supplies of high-quality batteries for EVs.”

“Therefore, LG has become able to supply EV batteries for the Chinese market starting 2021,” the official added.

As China is expected to become the biggest market for cars running on lithium-ion batteries, accounting for about 50 percent of the global market, Korean EV battery makers have been laying the groundwork for partnerships with Chinese automakers.

The annual sales volume of EVs in China is projected to grow from 1.5 million units in 2020 to 3.5 million in 2023 and 5.8 million in 2025, according to research by stock brokerage firm Mirae Asset Daewoo.

There have been barriers for Korean battery makers to break into the market due to the government subsidies granted only for Chinese battery firms. China will put an end to the subsidy plan after 2021.

“While battery firms from around the world are seeking to set up various types of JVs in China in order to enter the market, LG has gained a competitive edge by partnering with No. 1 carmaker Geely,” said Kim Jong-hyun, president of LG Chem’s energy solution business.

“LG will aggressively penetrate into the market while contributing to development of the Chinese EV industry.”

In April 2018, LG had set up another joint venture with China’s Huayou Cobalt to establish production facilities for precursor and cathode materials for batteries, with a plan to invest a total of 239.4 billion won by 2020.

Starting next year, the China plants will produce 40,000 tons of precursors and cathodes, respectively, and supply the materials for LG Chem’s EV batteries for about 400,000 vehicles capable of driving 320 kilometers on a single charge. .

By Song Su-hyun (song@heraldcorp.com)