Perspective: Korea’s Place in the Future of Global Battery Value Chains

15 Jul 2020
By Dr Kyungjin Song
Perspective: Korea’s Place in the Future of Global Battery Value Chains
By Kyungjin Song, Director, FN Global Issues Center

The Future Battery Industry Cooperative Research Centre and the Perth USAsia Centre launched their flagship study on the governance of the global battery industry on 8 July with a live online discussion. This article highlights the key points made by guest speaker Kyungjin Song on South Korea’s battery industry.

Introduction

Renewable energy, new transport and industrial technologies, and increasing concerns about climate change has driven rising demand for batteries. In May 2020, Korea exported a record number of Electric Vehicles (EVs) at 11,496 units, despite the decrease in overall automotive exports due to the adverse impact of COVID-19. The market capitalisation of Tesla, the world’s leading EV maker, exceeded US$245 billion. This is larger than the market cap of the three major US automakers combined: GM, Ford, and Fiat Chrysler.

This has led the Korean government to identify the industry as one of the nine major growth engines of its economy. This will put Korean industry in stiff competition with China. But of these nine growth categories, the battery industry has been assessed to be in better shape with Korea’s innovation capabilities and has prompted powerful domestic business partnerships. For example:
  • Korea has three of the global leading manufacturers of lithium-ion batteries: LG Chem, Samsung SDI, and SK Innovation.
  • Powerful business partnerships are beginning to form. In Seoul in late June, there was a gathering of the heads of Hyundai-Kia Motor Group, the world’s fourth-largest manufacturer of EVs, and the top three battery manufacturers. The meetings were initiated by the head of Hyundai-Kia Motor Group, with a view towards consolidating the domestic value chain. The meetings were convened to explore further cooperation for sustainable battery supply and the development of next generation batteries.
  • Batteries are the most important component of EVs, accounting for 40 percent of their production cost. Referred to as “Korea’s Battery Alliance”, the four business leaders agreed to cooperate, but bilateral cooperation looks most likely.
  • A joint R&D project could have a significant impact on the battery industry. If a four-way strategic partnership materialises among them, for instance a quadrilateral joint R&D project or a joint venture, it would be a business partnership of historic proportions. Each company spends quite a lot on R&D. LG Chem spends about 4 percent of its total budget on R&D. If they can move past their status as competitors and pool their R&D resources together, they have the potential to make history in the battery industry.
The policy landscape: domestic and international
At the government policy level, in May 2020, the Korean government announced a “10-Year Resources Development Basic Plan for 2020-2029”. This Basic Plan is revised and upgraded every five years for a 10-year timeframe.
  • The most striking feature of the revised Basic Plan is the shift in policy focus away from resources development to resources security. This is mostly due to an intensifying nationalist and protectionist global trend.
  • As discussed in the report, the defining feature of battery mineral extraction is a high degree of supply concentration. China possesses 37 percent of proven global rare earths reserves yet it has an outsized share of global production at 71 percent. The United States imports 80 percent of its rare earths from China. Indonesia banned nickel ore exports in January 2020. Democratic Republic of Congo raised its cobalt export tax from $60 to $100 per ton to force companies to process locally.
  • These policy developments among top-producing countries have the potential to increase risks in global value chains. Critical minerals and materials can be used by states with ulterior geopolitical and economic agendas, especially in undemocratic, despotic regimes. There is a high probability that critical materials will be “weaponised” by some countries with a dominant share of production.
  • Against these new developments this revised Basic Plan focuses on strengthening international cooperation. It promotes global networks to secure stable and sustainable supply of critical materials and make the related industries and businesses more risk resilient. Specifically, major exporters of battery minerals such as Australia, Brazil, Chile, Peru and Canada are priority countries for Korea to forge strategic partnerships with in order to pave the way to support Korean businesses. For example, Korea could enter into long-term purchase contracts with these countries. 
Korea seeking reliable international partners
With the rising demand for EVs and other technology applications, it is a critical time for Korean manufacturers to strike long-term strategic partnerships and deals with reliable producers of critical materials. POSCO’s investment in Pilbara Minerals is an important example and will prove to be a good decision in the long-term.
  • Korea also plans to strengthen cooperation with Australia and Indonesia in particular by supporting local companies to develop their capacity in the value chains.
  • Building upon this policy initiative, Korea and Australia should deliberate on a concrete collaboration initiative and deliver it. For example, both countries should explore establishing a joint venture to produce cathodes in Australia because the battery industry has relatively high technological entry barriers and Australia wants to develop its mid-stream capacity in the value chain.
  • A taskforce is currently being organised to conduct a criticality study and to develop a roadmap for securing a stable and sustainable supply of materials. It will involve the Korean government, the Korea Institute of Geoscience and Mineral Resources (KIGAM), the Korea Resources Corporation (KORES), business and academia.
Recommendations
The following proposals are ideas for the Korean government and Korean battery manufacturers to consider:
  • Broaden capabilities and research to include the next generation of batteries and future innovation. Although Korea is a global powerhouse in lithium-ion batteries, which have reasonable energy density, are light weight and low cost, one of the unintended consequences of this leadership in lithium-ion batteries has resulted in a narrow focus. Samsung SDI recently announced its success with the All-Solid-Battery but it is still only a success in the lab. Experts believe that it will take time to reach commercialisation due to its high cost, imperfect processing and low performance. In view of the concern over the depletion of lithium and the forecast that lithium-ion batteries will reach their limit in 5-10 years’ time in terms of capacity, power and safety, the recent gatherings of the heads of Hyundai-Kia and the three battery manufacturers was a positive signal to the market that they are turning their attention to next generation batteries and future innovation.
  • Manufacturers need to include SMEs, venture companies, and academia in R&D projects.  Through this process they will help produce competent R&D professionals whose shortage is widely felt in both across all sectors.
  • Establish a code of conduct to promote good governance in the battery value chain. Countries that produce critical battery materials are often fraught with many political and social problems such as poverty, lack of governance, social conflicts and labour malpractices. Battery suppliers often turn a blind eye when it comes to these issues. We have a pressing need and cause to integrate these issues into an international code of conduct with broad-based participation by governments, businesses, civil societies, and managed, monitored and followed up in partnership with relevant multilateral organisations. The Kimberley Process Certification Scheme (KPCS) might serve as a model for a similar process for critical materials.
You can read the full report, ‘The governance of battery value chains: security, sustainability and Australian policy options’ on the Perth USAsia Centre website here.

Authors

Dr Kyungjin Song
Dr Kyungjin Song
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