How 2 South Korean Companies Have Managed to Terrify Ford, VW, and the Biden Administration
This is a story of cutthroat technological war, unfathomable corporate animus, a new kind of economic nationalism, and great power competition between the two most powerful leaders in the world. The likelihood is that the rare drama will end in a settlement that could lay low one of South Korea’s most powerful companies. But before then, it is a nerve-wracking spectacle that reflects the newfound tension rife in international batteries and electric cars.
In a case involving two relatively unknown South Korean companies, the International Trade Commission (ITC) , on Wednesday, barred the import of batteries meant to power the new electric Ford F-150 pickup, the most popular line of vehicles in the country for four straight decades. The batteries, made by South Korean giant SK innovation (SKI), were also intended for VW’s new crossover SUV, called the ID.4, which the German carmaker has planned to make in the U.S. to compete with the Tesla Model Y. But now, both companies must find another battery.
The draconian ruling favors LG Chem, SKI’s blood enemy in the ruthless South Korean battery business. Their loathing is perhaps understandable: they are both at the very cutting edge of current lithium-ion technology, and competing for the lucrative business of the same global automakers in what is thought to be one of the most important future industries — electric vehicles. Both are also tinkering with the same chemistry — NMC, the go-to battery formulation for most electric vehicles—but have landed on different ways of pushing it to better performance.
On Twitter and elsewhere, the case has captured the attention of the battery and EV communities. A key issue raised has been the geopolitics— an impression, misguided in my view, that the case threatens President Joe Biden’s intention to get the U.S. fully into the global battery-making war. It has also highlighted the fierce contest among the automakers to be dominant in EVs. A primary reason for my own interest, though, has been the high stakes and naked ambition of the multiple parties.
The broad strokes of their fight go like this. In 2018, SKI achieved a coup: It managed to sell its version of NMC to both Ford and VW, snagging the lucrative U.S. contracts for both. But LG cried foul — it accused SKI of relying on its trade secrets to make the battery. It said SKI had poached some 100 of its workers, some of whom it said had taken with them important data. LG alleged that, in one case, a former employee provided SKI with core LG manufacturing recipes for 57 types of EV batteries. When LG decided to sue, SKI went on a document-destroying frenzy, ordering employees to get rid of anything containing LG’s name, the complaint alleged. SKI admitted that documents were destroyed but said it was a normal culling of unnecessary matter and that everything germane had been preserved.
In Wednesday’s decision, the ITC upheld a default judgement rendered previously against SKI. Elizabeth Rowe, a law professor at the University of Florida and a specialist on intellectual property, told me that the ITC judge probably studied both the merits of the case and the allegations of document destruction, and that both appear to have gone heavily against SKI.
The ruling bars SKI from importing its batteries and other components for 10 years, which would be a body blow to the company given the size of the U.S. market. It softens the damage for the automakers themselves by allowing Ford to use the SKI batteries for four years, and VW for two years, while they search out another supplier. SKI can meanwhile appeal the ITC ruling and has said it will proceed with building the plants, which are being built in Georgia.
All along, SKI has said it would seek help from the White House. It has appeared to be acutely aware of the keen eagerness in both the Trump and Biden administrations to jumpstart the U.S. battery industry. There is a 60-day review period in which Biden can overturn the ruling, and SKI appears to believe it has leverage in which Biden may do so.
It is true that electric cars are at the heart of Biden’s economic policy, an infrastructure bill that he hopes to push through Congress after the current Covid-19 relief package. He wants to add 500,000 EV charging points, extend $7,500-per-vehicle federal rebates, and incentivize the construction of new battery-making plants. All of this would underpin a new green industrial policy, while also making the U.S. competitive in EVs against China, currently the leader in sheer numbers in the manufacture of electric vehicles and batteries. As of now, the U.S. battery-making market consists solely of Tesla, LG, and Envision, which produces a small number of batteries for Nissan. SKI would be in addition to them.
But while Biden could overrule the decision, he won’t. If Biden overruled the ITC, he would be helping a U.S. company (Ford) get the electric version of its fabulously popular pickup truck into the market and keep it there. But he would also be setting an irretrievably horrible precedent that could forever destroy the seed corn of the greatest U.S. competitive advantage, which is its record of invention. If Silicon Valley and the rest of the American creation machine could no longer rely on the sanctity of its trade secrets and patents, they would harbor doubts about the value of billion-dollar investments and years of time spent on difficult, already-risky, and very tricky research. Biden would not take that risk.
In an appeal yesterday over Twitter, Ford CEO Jim Farley asked SKI and LG to find a settlement between themselves. And that’s the most probable outcome.
The two companies may wait the full presidential review period, but once they start talking, LG will be in the driver’s seat. The pressure on SKI will be immense. Ford will be a primary source of it: it will tell SKI that it doesn’t care whether the company makes money or not, about its feelings, its pride, or its animus toward LG. It will say it cares only about its flagship vehicle, the F-150, and the shift to electric. So SKI should go to the negotiation table and reach an agreement that results in Ford getting access to its batteries until it no longer wants them.
But that won’t be all: LG too, will intensify the pressure. On the strength of the ITC decision, LG will insist not only on barring SKI’s batteries from the U.S., but globally. It may not succeed in the courts, but the threat may be sufficient to push away automakers, fearful that they could end up embroiled in litigation. “Automakers are so risk averse, they will no doubt think twice about partnering with SKI in the future,” said James Frith, head of energy storage for BloombergNEF, a research firm for green energy.
The Biden administration will push, too. Short of a settlement, “the biggest winner is the Chinese battery industry,” said Sam Jaffe, managing director of Cairn Energy Research “American buyers might have to order a lot of Chinese batteries over the next few years, tariffs and all.”
Therefore, SKI will settle — it will have to. LG, highly unlikely to be compassionate, will seek to exact a high price. No one outside the companies themselves has any idea what that settlement will look like. It could be a licensing agreement in which SKI pays LG out the wazoo, even 50% or more of its U.S. and global revenue for the battery. But it would save SKI, along with the string of parties attached to the drama.