LG Chem's share price gained 3.57 percent on Oct. 22 when Tesla announced earnings which exceeded market expectations. On the day, most of the top market-cap stocks remained weak, but only LG Chem gained ground. Industry insiders believe that Tesla had a huge impact on the LG Chem stock price. This is because LG Chem is believed to be developing a new type of battery that Tesla unveiled on Battery Day in September. In preparation for a surge in Tesla's battery orders, LG Chem plans to triple its capacity to produce cylindrical batteries from current 20 GWh to 60 GWh in 2023.
The reason why LG Chem is being regarded as a strong candidate to supply a new type of batteries to Tesla is the remarks of Jang Seung-se, executive vice president of LG Chem, during a conference call on Oct. 21. "We are currently developing cylindrical batteries that have five times more energy density and six times more output than current batteries," he said.
This is exactly the same as the specifications of the 4680 battery pack unveiled by Tesla CEO Elon Musk on Battery Day in September. Compared to 2170 Battery, he said, 4680 Battery’s capacity will be five times larger and its output will be six times larger so it will increase driving distances 16 percent. The new battery cell will be 46 millimeters in diameter and 80 millimeters in height.
Tesla initially said it would manufacture the 4680 battery pack on its own. But it is a real challenge for Tesla to produce the amount on its own. Tesla's estimate of its need for the 4680 battery pack in 2022 is 100 GWh, which can power 1.3 million electric vehicles annually. It is virtually impossible to build such a large manufacturing facility in one year. Currently, LG Chem, the world's No. 1 battery maker, has a production capacity of 100 GWh. This is why Tesla is believed to have awarded production of some new batteries to current battery suppliers such as LG Chem.
LG Chem's decision to increase its production capacity also suggests that Tesla may have placed orders for new batteries with LG Chem. Although LG Chem initially expected its production capacity to stand around 100 GWh at the end of 2020, it adjusted it to 120 GWh in the conference call. Almost all of cylindrical batteries that LG Chem produces for electric vehicles is used in Tesla cars.
LG Chem expects its production capacity to double to 260 GWh in 2023. Market watchers forecast that 60 GWh of the total capacity will be cylindrical batteries. In other words, Tesla will purchase more than 20 percent of batteries to be produced by LG Chem.