Honda and LG to build $4.4bn US battery plant

Japanese carmaker Honda and South Korean battery maker LG Energy Solution will invest $4.4bn to build a new battery plant in the US, amid increasing pressure from Washington to cut China out of supply chains for electric vehicles.

It will be the first manufacturing facility for EV batteries in the US for Honda, which has committed to ending fossil-fuelled vehicles by 2040.

The slew of recent investment deals in the US by Asian carmakers and battery manufacturers comes as the US tightens environmental regulations, with California last week enacting rules that halt sales of new petrol-powered vehicles by 2035.

Companies are also being attracted by prospects for generous US subsidies for local production of sensitive technologies including chips and batteries.

“Honda is committed to the local procurement of EV batteries which is a critical component of EVs,” chief executive Toshihiro Mibe said in a statement.

LG Energy Solution said the two companies made the decision “based on the shared belief that expanding local electric vehicle production and ensuring the timely supply of batteries would put them in the best position to target the rapidly growing North American EV market”.

The joint venture, where LG will hold 51 per cent and Honda 49 per cent, aims to begin construction early next year. Mass production of lithium-ion battery cells is expected to start by the end of 2025. The two companies did not reveal the location of the plant, but Honda’s main manufacturing facility in the US is in Ohio.

Along with fellow leading battery makers SK On and Samsung SDI, LG Energy Solution is expected to be one of the main beneficiaries of the US Inflation Reduction Act, which was signed into law by President Joe Biden earlier this month.

The landmark legislation is designed to eliminate from the US supply chain battery components coming from “foreign entities of concern”, most notably China.

South Korea’s three leading battery companies enjoy more than a quarter of the global market share, according to SNE Research, and are pushing into the US market.

SK On recently finalised a $7.8bn joint venture with Ford to build three battery plants in the US, while LG Energy Solution and General Motors announced a $2.6bn investment earlier this year to build a third plant as part of their joint venture in Michigan.

Samsung SDI is reported to be accelerating a similar partnership with Stellantis, the group behind Peugeot, Fiat Chrysler and Jeep.

But there is consternation in Seoul that only electric vehicles assembled in North America will qualify for the generous consumer tax credits outlined in the legislation, hampering the ambitions of South Korean auto group Hyundai.

Senior South Korean officials, including the minister for industry, travelled to Washington on Monday to raise their concerns with their US counterparts.