Internal and External 2nd Li-ion battery < Company Business Analysis > Internal and External 2nd Li-ion battery market condition and business strategy Hanjae Sung

Technological Advantages Competitive Advantages Contents Technological Advantages Competitive Advantages Comparison with Samsung SDI Second battery industry in Korea Li-ion battery market Second battery for IT Five forces Analysis Conclusion Company Overview Issues Current Status Development in each sectors EV battery ESS battery Performance perspective Strengths SWOT Analysis Burger King said that it’s considering a merger with Canadian-headquartered Tim Hortons Inc. to create the world’s third-largest quick-service restaurant chain.(when) You and your wallet have a big stake in huge tax-dodging deals being crafted by big American companies, like Burger King merging with Tim Hortons, the Canadian coffee and doughnut chain. Tim Hortons : the Canadian coffee and doughnut chain. 캐나다 커피전문점 팀호튼스 팀 호튼스는 인지율이 높지 않고, 자체 합병에 대한 효과는 거의 미비한데, 왜 M&A를 하는 것일까?

Company Overview 1. LG manufactures basic petrochemical materials such as high density polyethylene, PVC and acrylic 2. The firm is divided into the petro chemistry business producing ABS, PC and synthetic rubber and the information and electronics business 3. It constructs medium and large battery factory for EV in Ochang, Chungbuk 4. Supplies the products to main car companies such as GM, Renault, Hyundai/Kia Motors, Ford and Volvo 5. The petro chemistry business is 75.75%, the information and electronics materials business is 13.29% and the battery business is 10.96% 6. Cultivates the information and electronics materials business dealing with secondary battery and polarizing plate as the future development industry Burger King said that it’s considering a merger with Canadian-headquartered Tim Hortons Inc. to create the world’s third-largest quick-service restaurant chain.(when) You and your wallet have a big stake in huge tax-dodging deals being crafted by big American companies, like Burger King merging with Tim Hortons, the Canadian coffee and doughnut chain. Tim Hortons : the Canadian coffee and doughnut chain. 캐나다 커피전문점 팀호튼스 팀 호튼스는 인지율이 높지 않고, 자체 합병에 대한 효과는 거의 미비한데, 왜 M&A를 하는 것일까?

Issues 1. LG has increased its business of Laptop battery as laptop sales is decreasing 2. Reduction in mobile battery sale due to decline in sales of its main customer Nokia 3. Samsung SDI supplied to BMW i3 whose competitiveness in higher than other xEVs, which is a threat to the LG Company 4. Lack of alternatives in other areas of businesses to sell batteries used in laptop 5. Stiff competition from Samsung SDI and Chinese companies Burger King said that it’s considering a merger with Canadian-headquartered Tim Hortons Inc. to create the world’s third-largest quick-service restaurant chain.(when) Tim Hortons : the Canadian coffee and doughnut chain. 캐나다 커피전문점 팀호튼스 팀 호튼스는 인지율이 높지 않고, 자체 합병에 대한 효과는 거의 미비한데, 왜 M&A를 하는 것일까?

Current Status 1. The market of battery for vehicles has the high potential power due to the demand increase of hybrid and EV 2. The small battery of the battery business is growing with the demands of mobile electric devices 3. LG maintains the structure to make the stable growth and profits through the continuous extension and the market share for the strategic customers 4. Growth is expected due to the gradual demand increase of EV according to the environmental regulations of each country which become strong 5. Increased the market share through the marketing activity for the global TOP customers as well as the continuous extension 6. EV battery business which is the future development business secured the main car companies such as GM, Renault, Hyundai/Kia Motors, Ford and Volvo

Development in each sectors EV Battery Improvement of the petrochemical and growth of the EV battery Bankruptcy of the medium and large battery companies including A123, the choice of vehicle companies was decreased Combination of factors such as Tesla’s success and each country’s fuel efficiency regulations, the complete vehicle companies make an effort to prepare the eco-friendly line-up including EV and hybrid car Battery supply for next generation EV with the existing customers like GM Sales of the medium and large battery of LG Chemicals are expected to exceed the existing guidance 2. ESS Battery It supplied the home ESS of KWh level and also advanced to the electrical grid connection market of MWh level The ESS battery sales of LG Chemicals in 2013 are expected to be 66.1 billion LG Chemicals was selected as the global leading company in ESS battery predicted to take 12.5 percent share of whole battery sales in 2017 and it is obvious indicator of company success Contracts for battery supply with about 10 companies and the range of supply is wide

Performance Perspective 1. Due to the demand decrease, the utilization rate of LG Chemicals’ cylinder battery remains at 70% 2. Sale of traditional laptop is decreasing. It means the decrease of cylinder battery 3. The profitability of the small battery sector of LG Chemicals has been deteriorated rapidly 4. The smart phone sales decline of main customers (Nokia etc.). 5. With the utilization rate decline of rectangular battery by the structural depression of cylinder battery demand 6. LG Chemicals recorded the sales of 437.1 billion won and the operating loss of 65.5 billion won Apple and GE owe at least $36 billion in taxes on profits being held tax-free offshore, Microsoft nearly $27 billion and Pfizer $24 billion, according to Citizens for Tax Justice

Strength 1. The technology to assemble the capacity and shapes including battery and BMS is called package 2. The battery provides the power for the running of EV, it needs the technically controlling system called BMS 3. The market is also divided into complete car companies and battery companies 4. Focusing on one group as the EV market grows and the battery companies are likely to control the market including packaging 5. EV technology improves and the use of battery/battery pack increases, the companies holding package technology is increasing

SWOT Analysis Strengths Weakness Opportunities Threats Opportunities Entry into LCD glass sub-slate business which is an upcoming technology, investments of up to 700 billion KRW Overseas expansions in US, UK and the Middle east have created a wider customer base, attracting increased profits & revenues Global battery market expected to grow to 50 trillion KRW by 2020, as LG Chem aims to capture market share of the global electric car battery market Uncertain global economic trends as rumors of another global recession loom over the world, which may result in lesser purchase of technology and increased losses to the business Stringent laws & regulations regarding Petrochemicals and their trade with increasing competition can result in lesser profits and more unfair trade. Development of electric vehicles such as GM’s volt, have to increase steadily, otherwise a major chunk of LG Chem’s revenue from the sale of electric batteries will be adversely affected. Stagnant market share in the sector as better technology & demand drive consumers to turn to competitive players in the market Over dependence on Petrochemicals which accounts for more than 70% of the Global revenue for the group Steady revenue growth with increasing annual revenue Battery business with an expected growth to 16 trillion KRW First mover’s advantage for the group for entry into the production of li-ion batteries Tremendous R&D capabilities, which also receives investments up to 16 million KRW Strengths Weakness Opportunities Threats Opportunities

Technological Advantages 1. LG Chemicals showed the excellent competitiveness, and for the 2nd-tier, Panasonic and Samsung SDI, and for the 3rd-tier, JCI, AESC and GS Yuasa 2. LG Group newly organized the vehicle business team in LG Electronics, and it shows the strong will to cultivate the components and materials for EV as the next generation growth power in the group 3. Difficult for the complete car companies to progress directly because it is the components technology 4. Number of the global complete car companies is significantly larger than the number of the main battery companies 5. Large amount are advantageous in terms of cost and technical skills compared with the complete car companies 6. It is not exclusive but it receives the stable supply from LG InnoTek which is the affiliate of LG Group

Competitive Advantages 1. For the secondary battery technology, JCI which has shown the highest awareness historically was discounted because its mild hybrid battery competitiveness is excellent but xEV products will be produces after 15 years 2. NEC has the weak competitiveness except for the sole vendor of Nissan, the fact that the growth can be limited unless the value of LEAF increase additionally 3. Weighted for the fact that it supplies the cylinder battery exclusively to Tesla which is the hot issue of EV market 4. It evaluated that it has the high short-term merit because the competitiveness of the recently released BMW i3 is higher than other xEVs which have been produced 5. LG Chemicals takes the advantageous position as an early starter

Comparison with Samsung SDI 1. LG Chemicals succeeded in entering the early market so it can prepare the technology and experience beforehand compared with other companies 2. LG Chemicals can cope with the demands of customers flexibly through the vertical systemizing of BMS-packaging 3. Both companies are not just the successful companies in Korea but also the global leading companies with considerable power 4. The composition of polymer(LG Chemicals) and rectangular(Samsung SDI), polymer can be superior in mid and long term due to its safety/low cost/high investment 5. LG Chemicals took the advantageous position as an early starter

Secondary Battery Industry in Korea 1. Drive distance improvement through battery performance improvement and PHEV market increase 2. Government’s institutional arrangement enhancement through subsidy and environmental regulations 3. The global car companies are likely to make the strategic partnership or the investment enlargement with the Korean secondary battery companies 4. Samsung SDI which is the exclusive supplier of the secondary battery for BMW i3/i8 is the key company for the strategic partnership with foreign car companies 5. Consumer’s interest increase through new model release and price-cutting

Li-ion battery market 1. The use of polymer battery is expanding focusing on smart phone and tablet PC. The global lithium-ion battery market is expected to record the annual growth of 8.4% until 2016 2. The market scale is smaller than the lead storage battery but the growth will be accelerated in the future 3. The Korean companies take the first place in the global market share and the Chinese companies are on the trace 4. The scale of the lithium-ion battery market is estimated as 150 hundred million dollars 5. the Korean companies started to surpass the Japanese companies through a. The independent technology development b. The establishment of price competitiveness in the state of strong yen/weak won c. The growth of Samsung Electronics and LG Electronics which are the main customers

Secondary Battery for IT 1. The market scale of the secondary battery for IT is expected to be 12.5 billion dollars increased by 8.7% compared with the previous year and it is also expected to record the stable growth with the early 10% in the future 2. Increase of the middle priced smart phone and the price competition, the growth of the cellular phone market is expected to be delayed 3. Sales of Galaxy S4 released in April 2013 didn’t meet the expectation and the worries about the smart phone growth was presented 4. As the global consumers’ use of multi-media such as app/game/movie increases, the data sales of mobile communication companies are increasing rapidly 5. The demands for smart phone in 2013 is expected to be 1 billion phones increased by 44.1% compared with the previous year 6. Apple which has the competitive advantage of smart phone software and other Chinese smart phone companies including Lenovo working in China which is the biggest smart phone market in the world are expected to lead the global smart phone market

Five Forces Analysis Threat of New Entry Compet-itive Rivalry Supplier Threat of New Entrants Huge competition from Samsung SDI. LG maintains its superiority by production of composition of polymer regularly Vertical systemizing of BMS-packaging, it can beat competitor Competitive Rivalry Korean companies are also maintaining its market dominance in medium and large battery LG Company takes second position globally and shows most outstanding capacity in li-ion battery LG Chen has gain a better position in future in medium and large battery Compet-itive Rivalry Supplier Power Buyer Power Supplier Power Opportunity in terms of cylinder battery when Tesla company big plan of selling more EV in market Consume more cylinder batteries so company must focus to have a contract with Tesla Company to reap this benefit Buyer Power Company can look for other segments in cylinder battery sales such as electric bike or electric tools where cylinder battery demand may grow up in future Threat of Substitution Threat of substitution LG has to increase its mobile sales and find out new mobile company customers to improve its sales in small battery product

Conclusion(Recommendation or Suggestion)