What Biden’s EV Plans Mean for a Korean Battery Fight

(Bloomberg) -- The U.S. International Trade Commission dealt a significant blow to SK Innovation Co. in early February when it banned the South Korean battery maker’s products from the U.S. for 10 years. It also threw a wrench in the works for Ford Motor Co. and Volkswagen AG, which are relying on them for some of their future electric-car models at a time of tight supply industrywide. Barring a settlement, their choice is to find alternative sources or appeal to U.S. President Joe Biden, who has pledged to promote made-in-America EVs, to veto the ban on public policy grounds -- a rare move last used eight years ago during the Apple-Samsung feud.

1. What is the ITC?

It’s a quasi-judicial government agency that investigates complaints about unfair trade practices. If it finds U.S. markets are being harmed, it can order corrective measures. Typically, it issues a ban if it finds an importer is infringing a U.S. patent or other intellectual property, like a trade secret. In just three instances since 1979, it has said the public interest is more important than the patent rights and declined to impose an import ban, though it has issued carve outs, like it did in this case, to limit disruptions on third parties.

2. How did this case end up here?

LG Energy Solution Co., the world’s second-biggest manufacturer of EV batteries, filed a complaint in April 2019 at the ITC accusing its smaller competitor of stealing trade secrets and hiring some of its key staff. LG Energy decided to bring the case with the ITC because its process is relatively fast and it has the power to take strong action against firms found to have made intellectual-property violations. The companies later accused each other of infringing U.S. patents on battery technology in still-pending ITC cases. SK Innovation also sued LG Energy in South Korea, a case LG Energy won.

3. What’s the impact on the companies?

The Feb. 10 ruling puts a cloud over SK Innovation’s U.S. expansion. The company is building two battery plants in Commerce, Georgia, the first of which is due to start commercial production in early 2022. Some of the components needed to make the batteries, like highly refined metals and specialized mixtures of chemicals, are largely produced outside of the U.S. To give Ford and VW time to look for alternatives, the ruling allows SK Innovation to import components for four years for domestic production of Ford’s 2022 F-150 Electric, and for VW’s MEB line for two years. A report by BloombergNEF said that could give the South Korean company enough time to develop alternate sourcing for the banned imports for Ford, but probably not VW.

4. How about on Biden’s green agenda?

A Jan. 27 executive order calls for replacing the entire federal vehicle fleet -- some 645,000 vehicles in all -- with zero-emission models that are made in America by union labor. Currently, no such vehicles exist that meet all the criteria. Biden’s order is intended to spur investment in the U.S. and has no deadline, but any disruptions in production could cause delay. (In addition Georgia was a crucial swing state for Biden, and the two battery plants are expected to create 2,600 jobs, according to BNEF.) Cars need to have at least 50% U.S. parts to be considered American-made under federal procurement law.

5. Isn’t there already a crunch in the EV battery supply chain?

There is, and that’s adding to the headache for automakers, considering they’re already struggling with a global shortage of semiconductor chips. The cost of lithium hexafluorophosphate -- a product used in battery electrolytes -- has increased steadily over the past six months amid booming demand for electric cars. Globally, EV sales are projected to surge 60% this year, according to BNEF, which expects tight markets for lithium, cobalt and battery-grade nickel to drive prices higher this year.

6. Can the president overturn the ban?

Yes, there’s a 60-day presidential review period after the ruling. But vetoes are pretty rare. An import ban that could have blocked some older iPhone 4 and iPad 2 3G models was vetoed by the Obama administration in 2013 in a blow to another South Korean company, Samsung Electronics Co., which had just won a patent-infringement victory over California-based Apple Inc. That veto was the first of its kind since 1987, when President Ronald Reagan intervened in a case involving Samsung computer-memory chips because it would disrupt the computer market. In each of the presidential disapprovals, as they are called, the decisions were based on public policy and not the underlying dispute.

7. And if he doesn’t?

During the review period, the two sides could settle and keep the plants open; LG Energy has said it’s open to talks. The two companies have met several times over the last year but weren’t able to resolve their differences. In the event of any settlement, SK Innovation may have to pay more than 2 trillion won ($1.8 billion) in compensation to LG Energy, according to an estimate from SK Securities Co. Local media in South Korea have reported that figure could stretch to as much as 5 trillion won. During the review period SK Innovation can continue importing and selling its Korea-made batteries as long as it posts a bond equal to 100% of the value of the products. Once the ban takes effect, SK Innovation can go to the U.S. Court of Appeals for the Federal Circuit, challenging both the sanctions decision and import ban. It would likely seek an order staying the ban during the year or so it will take for the appeal to work its way through the system.

8. What does it mean for SK’s rivals?

It potentially gives competitors a chance to eat into SK Innovation’s market share -- so long as they work hard on the specs that would make Ford and VW happy. Unlike regular car batteries, EV batteries aren’t interchangeable, relying on various complicated cocktails of chemical elements that determine a car’s range and power output. SK Innovation’s EV battery order book in the U.S. is worth about 20 trillion won, almost 30% of its total order book of 70 trillion won, according to SK Securities. In addition to LG Energy, rivals include Samsung SDI Co., Panasonic Corp. of Japan and the world No. 1 EV battery maker, China’s Contemporary Amperex Technology Co. Ltd. LG Energy has a factory in Holland, Michigan, so it could potentially pivot to making the sort of batteries Ford and VW require. General Motors Co. and LG Energy also are planning a battery factory in Ohio for use in GM vehicles. Panasonic, which supplies batteries to Tesla Inc., has a plant in Nevada while Samsung SDI has one in Auburn Hills, Michigan.

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