Input 2020.12.24 06:00
LG to build vertical integration of electric vehicles such as motor, air conditioning, display, battery, communication, and charging
LG-Magna Alliance, consignment production of Apple electric vehicles?… Expert “There is a possibility”
“We don’t compete with our customers.”
This is the corporate motto of TSMC, Taiwan, which has the largest share of the semiconductor foundry (consignment production) market. TSMC occupies more than half of the global foundry market with a strategy that does not play more than an outsourced pep (factory) that makes semiconductors as designed by customers. This contrasts with Samsung Electronics, the second largest foundry, as an integrated semiconductor company (IDM) that encompasses chip design to finished product production and sales.
◇ Combining the capabilities of Magna and LG Group’s electric vehicle, which makes all parts
Magna has a philosophy that never makes and sells its own car. This is because it can compete with existing customers such as Mercedes-Benz, BMW, Porsche, Volkswagen, Ferrari, Mini, Jaguar, Toyota, Infiniti, GM, Peugeot and Hyundai. In particular, Magna produces some vehicles of these brands by commissioning them at Austrian factories, where 2.5 million Mercedes-Benz cars were made. TSMC’s strategy at the foundry works for Magna as well.
Magna and LG Electronics joined hands. LG Electronics announced on the 23rd that it will establish a joint venture with Magna for electric vehicle powertrain. The new joint venture is in charge of driving systems such as motors and inverters, which are key parts of electric vehicles. The name of the joint venture is’LG Magna e-Powertrain Co., Ltd’ (tentative name), and the head office is located in Songdo, Incheon, where the factory of the VS division of LG Electronics is located.
Previously, in 2013, LG Group officially launched the VC (Vehicle Components) division (currently the VS division), which is dedicated to electric vehicle powertrain and automotive electronics, based on technological know-how accumulated in home appliances. LG Electronics, which had built a reputation as a home appliance company, was accepted as a great challenge in the industry at that time. This is because it is very difficult for latecomers to break through the supply chain (supply chain) already in place in the traditional manufacturing industry.
LG Electronics struggled with accumulating deficits over the years, but achieved some results. As the proportion of electric equipment used in automobiles increased and the electric vehicle market expanded, LG’s many advantages were recognized. In the case of GM’s flagship electric car Chevrolet Volt, 87% of all parts are left to LG.
◇ IT company tapping the electric vehicle market… The sketch of business reorganization drawn by Chairman Kwang-Mo Koo?
Therefore, the industry does not see this alliance as a simple powertrain (dynamometer) cooperation. They are expecting synergy in a bigger picture. An industry insider said, “No matter how high individual technology is, it is very difficult for latecomers to break through the existing supplier chain without establishing a trust relationship for more than a dozen years.” It is a situation where we can expect even synergy.”
The series of processes is in line with the reorganization of the Gugwang model business, which aims for synergy as a whole by clarifying the role of each business within the group. After taking office, Chairman Koo acquired ZKW, an Austrian automotive lamp company in 2018, and spun off the battery division of LG Chem as a separate subsidiary to power automotive batteries. It is interpreted that this is a joint venture between LG Electronics and Magna that has completed the sketch of the automotive electronics field that Koo is particularly interested in.
Some analysts say that Chairman Kwang-mo Koo’s bigger goal is to incorporate LG into the chain of consignment production of electric vehicles. Just as the Pepris company entrusts the semiconductor production to the foundry, if an IT company without an electric car manufacturing base entrusts the electric car to Magna, LG provides an integrated EV solution. It is moving with the idea of pioneering the market as a technology development company rather than manufacturing. Jaguar has already received many parts of the electric vehicle I-Pace from LG, and is consigning production to the Magna plant.
According to a recent Reuters report, Apple is expected to introduce self-driving electric vehicles by 2024. Magna is currently being mentioned as a candidate for consignment production of Apple electric vehicles. Accordingly, there is a growing possibility that LG Magna will supply electric vehicle modules to Apple cars.
The market response is good. Shares of LG Group affiliates drew an upward curve after the announcement of the establishment of a joint venture with Magna. As of the 23rd, LG Electronics closed the transaction at 119500 won, up 29.61% from the previous day. Thanks to the rise in stock prices, LG Electronics’ market capitalization on this day reached 19.555.9 billion won, an increase of about 4.5 trillion won from the previous day. The market cap increased 8 places from the 24th place, beating Naver and KEPCO. LG Innotek and LG Display also rose 12.8% and 6.41%, respectively.
An automobile industry official said, “Since manufacturing facilities such as automobiles require large investments in production facilities, IT companies need considerable determination to enter the automotive sector, and Tesla also takes more than 15 years of time and a huge investment to establish stable production facilities. “It is consignment production that saves such time, and there is a high possibility that Apple will also consign electric vehicles to Magna, and it seems that there will be LG’s target.”