In January, Lithium Investing News reported that South Korea’s SK Innovation and Germany’s Continental AG signed a letter of intent at the North American International Auto Show. In July, the companies signed a cooperation agreement whereby SK and Continental will invest several hundred million euros to form a jointly-managed company. The new venture will combine the expertise of SK Innovation and Continental in order to develop and produce electric vehicle batteries.
While both parties will maintain pursuit of their own business strategies, SK Innovation will hold majority interest, with a 51 percent stake in the new company; Continental will hold the remaining 49 percent.
Electric vehicles have become a staple in meeting global clean energy targets. As a result, demand for lithium-ion batteries, the main driver of lithium demand, has skyrocketed. However, lithium-ion batteries are still somewhat pricy, and that has caused a lag in adoption rates for electric vehicles. As such, it should come as no surprise that battery technology companies and vehicle manufacturers are teaming up with the goal of developing and supplying global markets with first class electric vehicle lithium-ion batteries.
A recipe for success?
By combining SK’s skill in battery development — specifically with regards to energy or power density — and Continental’s experience developing and producing vehicle battery systems, the joint venture places both companies in a prime position to lead the way with innovative solutions for the international automotive industry. The venture will facilitate the development of “battery systems for Hybrid Electric Vehicle (HEV), Plug-in Hybrid (PHEV) and Electric Vehicle (EV) programs at leading automobile manufacturers worldwide,” said Continental in a statement, according to Inautonews.
Both SK and Continental are confident that their partnership will supply global automotive markets by “introducing electric drive systems with state-of-the-art lithium-ion battery technology,” said Dr. Elmar Degenhart, Continental’s executive board chairman, in the company’s press release.
“The cooperation of the two companies’ capabilities and technologies is a remarkable starting point to open a new horizon for future transport. The combination of SK’s battery cell know how and Continental’s battery system know how will yield the best solution for the operation of electric car batteries and therefore suggests the most evolved model to the global automobile market,” stated executive vice chairman of SK Group, Chey Jae-won, in the same press release.
During the signing ceremony, Robert Lee, the chief executive of the new partnership, told reporters that the company anticipates its first revenue in 2015 with a break-even in 2017.
South Korea no stranger to lithium battery partnerships
The SK Innovation-Continental joint venture is not the first partnership to arise between a South Korean battery technology company and a German auto parts manufacturer. According to Reuters, 2008 saw Bosch (BSE:500530) partner with Samsung SDI (KRX:006400) to form SB LiMotive, a company geared towards developing electric power train solutions and lithium-ion batteries. However, Bosch is currently reviewing its position with the company; SB LiMotive is reportedly under threat of dissolution following strategy disagreements.
LG Chem (KRX:051910), one of South Korea’s leading suppliers of lithium-ion batteries, has also signed battery supply deals with several automotive companies, including GM, Ford, Hyundai, and Renault, according to an EV Update report.
How the lithium market stands to gain from new battery technologies
Where SK and Continental will source their lithium for the joint venture has not been set in stone, but it stands to reason that if companies are striving to meet global electric vehicle targets, the increased demand for lithium batteries will result in higher demand for lithium.
In a recent interview with Lithium Investing News, McKinsey & Company’s associate partner, John Newman, explained that partnerships within the lithium space are of utmost importance as they allow companies to improve upon existing technologies, reducing costs for consumers and securing demand.
Investors should keep an eye out for research and development firms looking to secure stable supplies of lithium with producers and exploration companies.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.