One of the biggest electric-vehicle battery companies in the world is going public. South Korea’s LG Energy Solution, which makes powerpacks for the likes of General Motors Co., is looking to raise up to almost $11 billion in a listing that could value the company at close to $60 billion. Big, bold and promising as that is, investors need to look carefully.
For deep-pocketed money managers, especially those hoping to fulfill their ESG mandates, the LG Energy initial public offering has all the trappings of the perfect investment. It’s backed by one of South Korea’s well-established, chemical-to-electronics conglomerates, which guarantees its place in a supply chain-crunched world. It has a long-list of captive customers (mostly carmakers), a huge order backlog, and most importantly, the battery technology. LG Energy has a grip on over a fifth of the global market by production capacity, just behind Chinese battery behemoth Contemporary Amperex Technology Co., or CATL.
It’s worth injecting some skepticism, though. A big advantage for LG is its hold on the tech and its ability to quickly scale production. Unlike CATL, though, it hasn’t been able to convert that into fat margins yet. The company, which ran a loss over 2019 and 2020, posted an operating margin of just over 5% in the first nine months of this year, compared with CATL’s 12% to 15%. Its mainstream batteries — the nickel-cobalt-manganese variety, or NCM712 — are more energy-dense and expensive than the now widely...
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