[Bojo, Battery] The Significance of LG Energy Solution Supplying Batteries to Mercedes-Benz

Start of Cylindrical Battery Orders
Diversification of Portfolio, etc.

On the 7th of this month, at LG Science Park in Magok, Gangseo-gu, Seoul, Kim Dong-myeong, President of LG Energy Solution, is presenting the vision and mid-to-long-term strategy at LG Energy Solution's first Vision Sharing Meeting. Photo by LG Energy Solution

LG Energy Solution has signed a multi-trillion won electric vehicle battery supply contract with a Mercedes-Benz affiliate. The large-scale battery supply to European automakers offers a breakthrough and potential turnaround amid the electric vehicle chasm (temporary stagnation in a growth industry).

According to the battery industry on the 9th, LG Energy Solution will supply a total of 50.5 GWh (gigawatt-hours) of batteries to be installed in Mercedes-Benz electric vehicles from 2028 to 2038. Considering that 1 GWh of batteries is installed in 12,000 electric vehicles, this corresponds to batteries for more than 600,000 electric vehicles. The contract amount was not disclosed. Given that the global average battery cell price last year was about $107 per kWh, the contract exceeds 7 trillion won. However, battery cell prices have been continuously falling due to increased raw material supply, so the supply amount after 2028 is likely to be lower than this.

Start of Orders for 46-Pi Cylindrical Batteries

Industry insiders believe that the ordered quantity is for the next-generation cylindrical battery known as the '46-pi' (46 mm diameter cylindrical battery). The 46-series batteries to be supplied to Mercedes-Benz are expected to be produced at LG Energy Solution's cylindrical battery factory currently under construction in Arizona, USA. The Arizona cylindrical battery plant is LG Energy Solution's second standalone factory in North America, with a capacity of 36 GWh, and construction began in April. The industry expects it to be fully operational from 2026. However, LG Energy Solution stated, "We cannot confirm any additional details beyond the disclosed information due to consultations with the client."

This order is significant as it is the first order for the 46-pi (diameter) cylindrical battery that LG Energy Solution has painstakingly developed. The 46-pi cylindrical battery features five times the energy capacity and six times the output compared to the existing 2170 (21 mm diameter, 70 mm length), and increases driving range by 16% compared to the previous model. Cylindrical batteries have standardized dimensions, which provide advantages in large-scale mass production by improving price competitiveness and yield. Mechanically, they are designed with a stable thick can structure, inherently offering high safety, and this characteristic allows for the rapid application of diverse and the most advanced materials. Cylindrical batteries are expected to grow at an average annual rate of about 41% from this year through 2028.

LG Energy Solution plans to mass-produce the cylindrical 4680 (46 mm diameter, 80 mm length) battery at its Ochang Energy Plant within this year. As LG Energy Solution's first 46-series battery, the industry expects mass production to start in December and be applied to Tesla vehicles.

Employees at LG Energy Solution's Ochang plant are showcasing the cylindrical batteries developed by LG Energy Solution. Photo by LG Energy Solution

Portfolio Diversification Including Cylindrical, LFP, and ESS

This order is also meaningful in that it diversifies LG Energy Solution's battery portfolio. Until now, LG Energy Solution has focused on pouch-type ternary (NCM·NCA) batteries as its main product to target the electric vehicle battery market. There had been no significant large-scale supply of cylindrical batteries other than to Tesla. Through this first reference (order record), LG Energy Solution has raised expectations for future cylindrical battery orders.

Battery experts see portfolio diversification as necessary to break through the electric vehicle chasm. Korean battery companies have concentrated their development and production on the electric vehicle market and ternary batteries targeting it, but amid industry downturns, weaknesses such as vulnerability to price competition and sluggish demand in upstream industries have become apparent.

LG Energy Solution is also the fastest to succeed in portfolio diversification. In July, it became the first domestic battery cell company to sign an LFP (lithium iron phosphate) battery supply contract with Renault's electric vehicle division 'Ampere,' totaling about 39 GWh. LG Energy Solution recently shared a vision to reduce dependence on the EV (electric vehicle) business and increase the proportion of energy storage systems (ESS). It has set a goal to achieve the No. 1 market share in the US ESS battery market by 2028 and to increase system integration (SI) sales fivefold.