South Korea's LG Electronics will spin off its electric car parts business into a new joint venture worth nearly $1 billion with Canada’s automotive supplier Magna International as the global automobile industry phases out conventional combustion engine vehicles and switches to electrification.
The joint venture, tentatively called LG Magna e-Powertrain, will manufacture e-motors, inverters, on-board chargers and electric-drive systems.
“The market for e-motors, inverters and electric-drive systems is expected to have significant growth between now and 2030, and the joint venture will target this fast-growing global market with a world-class portfolio,” the companies said in a joint statement on Wednesday.
Magna will buy a 49 per cent stake in the new unit for 501.6 billion won ($453 million) while the remainder will be owned by LG Electronics, the South Korean company said in an exchange filing.
LG will help accelerate Magna’s time to market and scale of manufacturing for electrification components, while Magna will bring its skills in software and systems integration to the venture, according to the statement.
“By combining our strengths, we expect to gain investment efficiency and speed to market with synergies to achieve more, all while continuing to capitalise on the acceleration of the electrified powertrain market,” Swamy Kotagiri, president and chief executive of Magna, said.
Automotive suppliers globally are increasingly positioning themselves to benefit from the growth in electric cars. Reports this week said that Apple aims to produce its first electric car by 2024 and will use its own breakthrough battery technology.
LG has experience in the development of electric vehicle components for models such as the Chevrolet Bolt EV and Jaguar I-Pace. Founded in 1957, Magna was the world’s third-largest supplier of powertrains, chassis and other various parts by revenue last year.
The new company will service orders from Magna and its clients. Electric vehicle components to be used include LG Electronics’ battery heater unit and its power relay assembly division, the statement added.
“Manufacturers need to be disruptive to maintain leadership positions in electrification and, through this deal, LG is entering a new phase in its automotive components business, a growth opportunity with enormous potential,” Kim Jin-yong, president of the LG electronics vehicle component Solutions Company, said.
LG Magna e-Powertrain will have more than 1,000 employees across locations in the US, South Korea and China.
The venture will also have a software R&D centre in Michigan, where Magna’s US headquarters is located, according to Bloomberg.
The transaction is expected to close in July, subject to obtaining LG shareholder approval.
The tie-up is LG Electronics’ second major investment in the industry after it bought automotive-lighting and headlight-systems provider ZKW Group in 2018 for €1.1bn ($1.3bn).