The US International Trade Commission (ITC) ruled in February that Electric Vehicle (EV) battery manufacturer SK Innovation (SKI) were guilty of intellectual property misappropriation and the firm was consequentially banned from importing components to produce EV batteries. The decision marks a huge win for South Korean rival LG Chem, a firm aiming to defend their competitive advantage in the US, although an alternative deal could still be reached via the ongoing civil lawsuits.
The ban on imports severely impacts SKI as the firm would have to source all the necessary components within the USA, a feat analysts predict as unfeasible. Therefore, the decision could risk the shutdown of SKI’s Georgia battery factory which promised to provide power for 330,000 cars and provide the US state with 2600 jobs. Furthermore, the target to reach 22GW of annual production capacity by the end of 2022 would have given a meaningful boost to US battery production.
The ITC’s ruling does stipulate that SKI can continue to provide batteries for automobile giants Volkswagen (VW) for two years and US headquartered Ford for four years. This is a lifeline for firms which had already revealed the electric VW ID.4 and the Ford F150, in the process committing to delivery dates that would be unachievable without the SKI batteries.
The lawsuit brought by LG Chem highlights the misperception that EV batteries are commoditised. In fact, there are various price and performance differences between manufacturers and small improvements can be extremely valuable. Contracts with EV manufacturers, whether that be supplier agreements or joint ventures, can run into the billions of dollars and competition is fierce. SKI’s desperation to close the gap to market leader LG Chem (Figure 1) and the inappropriate use of intellectual property has ultimately backfired with the company’s reputation damaged. This reputational damage alone could cost the firm future contracts with EV manufacturers which will be unwilling to risk bureaucratic interruptions to their supply chain.
Figure 1: Bar chart showing EV Battery Manufacturers Rankings. Bloomberg
Newly inaugurated President Biden has 60 days to overrule the ITC’s decision if he decides it is in America’s best interest, which would be an unlikely choice but not an unprecedented one. In 2013 Apple was granted permission by President Obama to continue selling older iPhone models (3GS/4) despite the US firm infringing on the patents of South Korean giant Samsung.
However, Biden’s Administration is unlikely to follow in the footsteps of his democratic predecessor due to the example it sets to foreign nations regarding intellectual property issues. Encouraging lithium battery production in the US may fit well with President Biden’s Green New Deal initiative whilst SKI’s 2.6 billion USD investment in the factory and the jobs created are also significant. Only 300 jobs have actually been created so far and Georgia’s officials are reportedly confident that in the event of a SKI shutdown, an alternative buyer for the factory could be found relatively swiftly.
With a presidential override appearing unlikely, the ITC’s compromise between protecting US jobs, via a grace period for VW and Ford, and enforcing America’s intellectual property laws looks set to be final.
By Taylor Alexander
Sector Head: Daniel Aliwell