[Complete Battery Mastery] ⑤ How Did Hanguk Outpace Ilbon?

Three Reasons Including Yen Appreciation Around 2010
Only Panasonic Preserves Japan's Face

Editor's NoteWe are now in the battery era. Batteries are found in almost every device, from mobile phones and laptops to electric vehicles. [Complete Battery Mastery] is a section created to easily convey the basics of batteries, their ecosystem, company information, industry trends, and outlook to general readers, students, and investors interested in the battery industry and related companies. We will meet you every Saturday.

Exchange Rates, Smartphones, and Electric Vehicles

"Japanese companies are fearful, recalling the nightmare of semiconductors."

In July 2010, the conservative Japanese daily Sankei Shimbun wrote this while comparing the secondary battery businesses of Korea and Japan. It expressed concern that Korean companies, having surpassed Japan in semiconductors and liquid crystal displays (LCDs), would also outpace Japan in the battery market. Less than a year later, the worries of Japanese companies became reality.

The following year, statistics were released showing Korean companies had overtaken Japan in the global lithium-ion battery market. In March 2011, the Japanese market research firm International Information Technology (IIT) announced that Samsung SDI had taken first place in the secondary battery market with a 20.0% share, surpassing Sanyo (19.3%). LG Chem ranked third (15.0%), and Sony fourth (11.9%).

In September of the same year, the Japanese market research company Techno System Research announced that in the second quarter, Korea had taken first place in the global lithium-ion battery market with a 42.6% share, overtaking Japan's 33.7%. This was the first time Korea surpassed Japan in quarterly statistics.

Japanese companies, which once held over 90% of the global secondary battery market including lithium-ion batteries, experienced a decline in market share to about half in the late 2000s. According to the Japanese Ministry of Economy, Trade and Industry, Japan's share of the lithium-ion battery market was 93% in 2000 but shrank to 48% by 2008. Korea (22%) and China (19%) took their places.

The reversal of fortunes between Korean and Japanese battery companies around 2010 can be analyzed mainly in three ways. First, the surge of the strong yen (Enkyo) caused Japanese companies to lose significantly in price competition against Korean, Taiwanese, and Chinese companies. This was a common issue faced by Japanese companies at the time.

Korean companies quickly mastered advanced technologies from the U.S. and Japan, then introduced products with good quality and price competitiveness through large-scale investments and cost reduction efforts. This is known as the catch-up strategy. In contrast, Japanese companies continued to adhere to a premium strategy focusing on high quality. With the yen's strength, Japanese companies gradually began to lose ground in the global market.

According to the Bank of Korea, in mid-2009, the profitability exchange rate for Japanese export manufacturers (the exchange rate level at which export companies can maintain profits despite yen appreciation) was 93.2 yen per dollar, but the actual exchange rate dropped to the 83 yen range, the lowest in 15 years. The strong yen continued, reaching the 75 yen range per dollar in 2011. This was a favorable factor for Korean companies competing with Japanese products in the international market.

The second reason was the emergence of the smartphone market. Since Apple launched the iPhone in June 2007, the mobile market underwent a major transformation. Korean electronics companies such as Samsung Electronics and LG Electronics quickly responded to the changing market environment by releasing smartphones. Many Japanese companies including Sony, Fujitsu, Toshiba, and Panasonic also introduced smartphones but failed to make a significant impact in the market.

The success of Samsung and LG smartphones led to the growth of domestic battery companies like Samsung SDI and LG Chem that supplied batteries. This became a driving force for quickly catching up with Japanese companies in the small lithium-ion battery market. Domestic companies targeted the market by launching lithium-ion polymer (lithium polymer) batteries, which are safer than conventional lithium-ion batteries.

Lithium-ion polymer battery for electric vehicles developed by LG Chem

Lastly, Korean companies effectively responded to the emerging electric vehicle market. Korean companies, having surpassed Japan in the lithium-ion battery market for smartphones and laptops, solidified their leading position by targeting the electric vehicle markets in the U.S. and Europe.

Batteries themselves cannot form a market; their success depends entirely on applications. Electric vehicles are an application vastly larger than mobile phones. The battery capacity in electric vehicles is thousands of times greater than that of smartphones. Dominating the electric vehicle market means easily conquering the battery market.

For example, the Galaxy S23 standard model contains a battery with a capacity of 3,900 milliampere-hours (mAh). Converted to watt-hours (Wh) using the average voltage of lithium-ion batteries (3.7 volts), this equals 14.43 Wh (3,900 mAh × 3.7 V). In comparison, the battery capacity of Tesla's Model 3 (long-range model) is 85 kilowatt-hours (kWh). One Model 3 contains the equivalent of 5,890 Galaxy S23 batteries.

Japanese companies led the way in electric vehicle batteries. Toyota began researching electric vehicles in 1994 as part of an R&D project to improve fuel efficiency. As a result, in 1997, Toyota launched the world's first mass-produced hybrid car, the Prius. However, Toyota insisted on using nickel-metal hydride batteries in the Prius from the first generation through the third, citing safety despite lower performance and heavier weight compared to lithium-ion batteries.

In 2010, Nissan made a surprise announcement of the world's first mass-produced pure electric vehicle, the Leaf. The Leaf used lithium-ion batteries from AESC, a joint venture between Nissan and NEC. However, Japanese electric vehicle manufacturers were more focused on hybrid cars and were passive in developing and launching pure electric vehicles. They showed more interest in hydrogen fuel cell vehicles. Laptop fires in the mid-2000s also influenced this decision.

Korean companies seized this gap. While Japanese companies concentrated on their domestic market, Korean battery companies actively targeted the global electric vehicle market by partnering with American and European automakers. The contrasting strategies of Korean and Japanese battery companies led to divergent outcomes in the forthcoming electric vehicle era.

The first-generation Chevrolet Bolt model released by GM in 2010

LG Chem entered the electric vehicle battery market in 2007 by signing a lithium-ion battery supply contract with Hyundai and Kia. In January 2009, LG Chem signed an exclusive supply contract for electric vehicle batteries with GM, significantly expanding its presence in the electric vehicle battery market. Subsequently, LG Chem also signed supply contracts with European companies such as Volvo and Renault. It proactively responded to the electric vehicle era by building the world's first battery-dedicated factory in Ochang, Chungbuk.

Samsung SDI established a joint venture, SB LiMotive, with Bosch in June 2008 to build a lithium-ion battery factory for electric vehicles. Starting with BMW in August of the following year, Samsung SDI signed successive supply contracts for electric vehicle batteries.

Panasonic's Revival through Partnership with Tesla

Among Japanese companies, only Panasonic has properly responded to the electric vehicle era and maintained its reputation to date. Elon Musk's 2008 pure electric vehicle, the Roadster, contains 6,831 Panasonic 18650 cylindrical batteries connected in series. Tesla was able to reduce costs by using cylindrical batteries originally designed for laptops in electric vehicles.

Elon Musk's choice was unexpected. At the time, other automakers considered lithium polymer batteries as an alternative to address safety issues. For example, GM's 2010 Chevrolet Volt was equipped with lithium polymer batteries developed by LG Chem.

However, Elon Musk chose the widely used cylindrical lithium-ion batteries over the more expensive and complex lithium polymer batteries. Cylindrical batteries have the advantage of natural heat management due to the inevitable gaps between cells. Tesla, then a startup, sought a reliable battery supply partner. Korean battery companies were already allied with American and European automakers. Ultimately, Panasonic of Japan partnered with Tesla.

Panasonic 18650 cylindrical battery used in Tesla electric vehicles. Photo by Tesla

Thanks to the successive successes of the Roadster and the luxury sedan Model S launched in 2012, Panasonic, which had been declining, made a spectacular comeback. Elon Musk and Panasonic jointly built the world's largest lithium-ion battery factory, the Gigafactory, in Nevada, USA, to supply cylindrical batteries. He also needed lithium-ion batteries for energy storage systems (ESS) used in his solar energy business, SolarCity.

Around the mid-2010s, the battery market was completely reorganized around electric vehicles. The Paris Climate Agreement signed in 2015 further heightened interest in eco-friendly vehicles such as electric cars. There were growing forecasts that zero-emission electric vehicles would lead the future automotive market. Following Tesla, GM, Ford, Volkswagen, and Volvo launched electric vehicles one after another. The global electric vehicle stock, which was only 17,000 units in 2010, exceeded 1 million units by 2020. Between 2014 and 2019, the annual growth rate reached 60%.

Battery companies also restructured their business around electric vehicles. China, which was late to enter the internal combustion engine vehicle market, drove the electric vehicle market, resulting in the rise of Chinese battery companies. From this point, a competitive landscape formed among Korea's LG Chem and Samsung SDI, Japan's Panasonic and AESC, and China's BYD and CATL.

A battery that maintains the excellent performance of conventional lithium-ion batteries while replacing the liquid electrolyte, which poses an explosion risk, with a chemically stable polymer (gel-type polymer compound) material. It is abbreviated as lithium polymer battery. It is a type of lithium-ion battery in a broad sense. Using a gel-type electrolyte, it is safer than conventional lithium-ion batteries. It can be made thinner and smaller. Its design characteristics make it widely used in mobile devices such as mobile phones and tablet PCs. However, it has the disadvantages of complex manufacturing processes and high cost. Lithium-ion polymer batteries are mainly produced in pouch form rather than metal cans, which can cause swelling phenomena.

Bank of Korea, Overseas Economic Information 'Evaluation and Implications of Japanese Manufacturing Competitiveness', 2010
Money Today, Japanese Battery Companies Shudder at Fear of 'Korean Semiconductor Nightmare' Repetition, 2010.7.28
Segye Ilbo, Korea Rises to World No.1 in Lithium Battery... Surpasses Battery Powerhouse Japan, 2011.9.3
Maeil Business Newspaper, Korea's Secondary Battery Breaks Japan's Monopoly... High Growth and Car Battery Dominance Decides the Outcome, 2014.2.3
Business Books, Elon Musk's Bold Challenge, 2015
Battery Inside, 'Climate Change, Electric Vehicles, and Batteries', 2022.4.5