A view of CATL headquarters in Ningde, East China's Fujian Province Photo: VCG

South Korea-based LG Chem announced that it will spin off its battery business as a subsidiary to strengthen its position in the rechargeable battery market for electric vehicles (EV), which industry observers said could help it gain a competitive edge over China-based CATL amid a race among Chinese, Japanese and South Korean players. 

The new company was tentatively named LG Energy Solution, according to media reports. The proposal will be reviewed at an extraordinary shareholders' meeting on October 30 and if approved, the wholly owned subsidiary will be set up in December.  

The new company is expected to make battery materials, cells and packs and provide services such as battery management, leasing, charging and reuse, Business Korea reported over the weekend.

Sales for LG Energy Solutions in 2020 are estimated at 13 trillion won ($ 11.18 billion), and LG Chem is targeting sales of more than 30 trillion won in 2024.

LG, as a multinational company, was already in a leading position in the battery industry worldwide with the advantage of a strong supply chain. After the transaction, the optimized resource allocation could strengthen its advantage and intensify the global competition, an industry expert said.

In the fast-developing battery market, industry analysts said the move would exert pressure on Contemporary Amperex Technology (CATL), China's leading battery producer, which is also a supplier of US-based electric automaker Tesla.

"But the intensified competition could also indirectly boost Chinese companies' innovation ability, especially for leading companies such as CATL," Chen Yongchong, the vice secretary-general of the energy storage branch under the China Industrial Association of Power Sources

As of the end of July, LG Chem was the top player in the global EV battery market, with an estimated 13.4 gigawatt hours of capacity deployed and the highest market share of 25.1 percent, according to a report from SNE Research. 

CATL ranked second, with a market share of 23.8 percent. 

According to Chen, the world's battery sector is dominated by companies from China, South Korea and Japan, such as LG, Samsung and CATL. China has the most integrated industry chain, Japan has the most advanced technologies and South Korea has the most globalized supply chain.

 "The integrated industry chain in China guarantees efficient mass production at a relatively low cost. However, in terms of technology and innovation, there is still room for Chinese companies to improve," Chen said.