Sparks could fly after Biden decision on EV battery dispute

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Riley Beggin, The Detroit News
·8 min read
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Apr. 9—WASHINGTON — President Joe Biden has until Sunday to intervene in a dispute between two major South Korean battery producers, a decision that carries major implications for plans by Ford Motor Co. and Volkswagen AG to produce new electric vehicles in the coming years.

The Detroit battle lines are clearly drawn: Ford has contracted with battery producer SK Innovation, the subject of a scathing International Trade Commission decision that determined it destroyed evidence in a case alleging stolen trade secrets. Cross-town rival General Motors Co. has a joint venture (and at least one more planned) to produce batteries with LG Chem, the company that pointed the finger at SK.

Now it's up to Biden and other top administration officials, keen to support union labor and the electrification of the auto industry, to decide whether to get involved.

The predicament illustrates the fragility of many U.S. automakers' battery supply chains, underscoring that companies investing heavily in electric vehicles remain reliant on Asian suppliers for the energy to power their EVs. And it puts Biden in a pickle, as he seeks to appear tough on unfair trade practices but support policies that will make the United States a leader in electrified transportation and reduce climate-harming emissions.

"One of the things they're going to have to weigh is consistency, both from a legal precedent and from the optics, how the United States' behavior lines up with what we're asking our countries to do in our trade relations," said Dave Andrea, an automotive analyst at Plante Moran. Biden has been a critic of unfair trade practices from the Chinese, he said, and consistency here may protect the United States in doing business with China in the future.

On the other hand, he said, Biden has goals to push the country toward electric vehicles in the hopes of cutting greenhouse gas emissions. And he will have to consider the industry's requirements under the U.S.-Mexico-Canada Agreement to have 75% of their core components produced in North America.

The quarrel between the two battery manufacturers began in 2019, when LG Chem alleged its competitor, SK Innovation, had stolen trade secrets related to its electric vehicle batteries by hiring its former employees and used those secrets to start their own battery business in the United States. SK Innovation denied the allegations.

SK had committed to spending $2.6 billion on two battery factories in Georgia, which would produce batteries for Ford and Volkswagen's North American operations, among others. The company estimated it would be able to supply batteries for 300,000 electric vehicles every year after being fully phased-in in 2023 and create 2,600 jobs.

Earlier this year, the U.S. International Trade Commission officially sided with LG, saying high-level SK Innovation employees had gone to "extraordinary" lengths to destroy documents related to the case.

It determined that SK would be barred from importing batteries to the United States for 10 years. The company could only produce batteries at the new Georgia plant for four years for Ford and two years for Volkswagen to give the companies time to find other suppliers.

The ruling effectively would force SK to close the Georgia plant, taking 15% of EV batteries off the market this year and reducing U.S. EV manufacturing capacity by more than 50,000 vehicles per year, according to an estimate by Benchmark Mineral Intelligence.

Ford was planning to get batteries from SK for an electric version of its F-150 pickup truck, the company's profit driver and the best-selling vehicle in the U.S., which it plans to launch next year. It will be the company's second electric vehicle launch after the Mustang Mach-E, which first launched late last year.

Volkswagen, a partner with Ford on certain new products, would have used SK's batteries in its American MEG line.

The looming decision on the ITC ruling is a stumbling block for the nascent Biden administration, which has made the expansion of electric vehicles in the U.S. a priority in its strategy to combat climate change. The transportation sector remains the top emitter of greenhouse gasses in the country.

SK has warned that it might withdraw its battery business from the U.S. altogether if Biden doesn't overturn the decision — a move that would risk leaving Ford and Volkswagen with diminished bargaining power with remaining suppliers.

LG Energy Solution, the electric vehicle battery spinoff of LG Chem, has said it plans to invest $4.5 billion to expand its U.S. battery production at its Holland plant and build two other plants in the next four years — perhaps replacing SK's Georgia plant. In addition to GM, some of LG's major clients include Tesla Inc. and Hyundai Motor Co.

However, it's not common for presidents to intervene in an International Trade Commission decision: The last time was in 2013, when former President Barack Obama rejected a commission decision that would have barred Apple Inc. from importing certain iPhones and iPads to the US. market. Before that, no president had intervened in an ITC decision for around 20 years, according to the ITC.

Both LG and SK have each reportedly been working hard to convince the administration to go their way. Former EPA Chief Carol Browner and former Acting Attorney General Sally Yates have been working on behalf of SK Innovation, meeting with the administration in attempts to get the president to intervene, according to Bloomberg. Former Energy Secretary Ernest Moniz is advising LG while others are lobbying the administration on the issue, according to the report.

Both sides say the future of the U.S. EV market hangs in the balance. Yates has argued the ruling would hurt the administration's climate change goals, put the U.S. at a disadvantage against China in the EV race, and hurt Ford and Volkswagen's efforts to fulfill the requirements of the U.S.-Mexico-Canada Agreement, or USMCA.

Volkswagen Group of America CEO Scott Keogh, arguing against the ITC decision, wrote on LinkedIn the final verdict "could accelerate the future of zero-emission vehicles and green jobs, or threaten to reduce U.S. battery capacity and delay the transition to electric vehicles."

Jonathan Jennings, Ford's global commodity purchasing vice president, told a Senate committee last month that the EV F-150 is "a critical project for us." He said if SK remains barred from supplying the companies, Ford will have to import batteries from foreign suppliers rather than make them at the plants in Georgia.

Moniz, working on behalf of LG, has argued that leaving the decision as it is would force SK to reach a settlement agreement with LG, which would allow the SK to continue selling batteries in the U.S. if it pays a hefty sum to its competitor.

The United Auto Workers has weighed in, too: The union sent a letter to the administration in the last week urging it to intervene in the decision, raising concerns about the implications joint-venture agreements like that of LG Chem's with GM could have for labor, according to two people familiar with the effort.

If Biden doesn't intervene, SK Innovation still has options. The company has asked the ITC to delay the ban and indicated it plans to appeal the decision in federal court.

But the ordeal illustrates the growing pains of a tectonic shift in the global auto industry. While automakers traditionally engineer and build their own internal combustion engines, not all automakers have decided to take the DIY approach to the batteries powering their new engines.

Tesla opened a factory in Nevada making batteries with Panasonic, and GM plans to take the same approach with LG Chem in northeast Ohio and Tennessee. In Europe, Volkswagen has partnered with Northvolt AB to build cells in Germany through a joint venture. Tesla CEO Elon Musk has said the company plans to build up its own battery cell production capabilities to keep up with demand.

Ford and Daimler AG, parent of Mercedes-Benz, so far have gone in a different direction, contracting with independent battery companies instead of enlisting a joint-venture partner or moving to make their own.

That's a more sustainable path in the short-term, said Andrew Miller, product director at Benchmark Mineral Intelligence. Deciding how to approach battery production in the long term will remain "a really prominent topic for all" automakers, he said. It's not a quick process: "Effectively what they're doing is a complete revamp of their whole business models."

The stakes of the ITC ruling expose a weak spot in automakers' near-term plans to ramp up electric vehicle production, experts say.

"What this shines a bright light on — and it's not a surprise to a lot of us — is that our EV supply chain needs to be more diversified, more resilient, and as quickly as possible we need to bring more of it home," said Genevieve Cullen, president of the Electric Drive Transportation Association.

"We need more resilient partnerships in the world but we also need to grow our domestic capacity. Everyone throughout the supply chain needs redundancy. What that unfortunate incident in the Suez Canal and the shutdowns in the pandemic taught us that everybody needs a couple of suppliers."

Twitter: @rbeggin