Magna in Electric-Car Parts Joint Venture With LG Electronics

(Bloomberg) -- LG Electronics Inc. plans to spin off some its electric-car components business into a new joint venture with Canada’s Magna International Inc.

Magna will buy a 49% 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. The joint venture will make e-motors, inverters and electric-drive systems in factories in Incheon in Korea and Nanjing in China, people familiar with the matter said earlier Wednesday.

Shares in LG Electronics soared by the 30% daily limit, their biggest gain on record. The company’s largest shareholder, LG Corp., advanced 10%, the most since March. Magna’s U.S.-listed shares jumped 9% to $72.50 as of 9:43 a.m. in New York.

Automotive suppliers globally are increasingly positioning themselves to benefit from the growth in electric cars. A mix of stricter regulations on gasoline-powered cars, favorable government policies and improvements in battery technology has led more automakers to speed up electrification plans. The shift also has sparked a rally in shares of market leader Tesla Inc. as well as Chinese startups Nio Inc. and XPeng Inc.

LG Electronics is “emerging as a new alternative to Tesla stock for investors,” said Jeon Kyung-Dae, chief investment officer for equities at Macquarie Investment Management Korea in Seoul. The company is “known as a leader in electronics parts and may produce electric cars based on an original equipment manufacturer model, rather than establishing its own EV brand.”

The new company, tentatively called LG Magna e-Powertrain, will service orders from Magna as well as Magna’s clients. EV components being poured into the joint venture include LG Electronics’ battery heater unit as well as its power relay assembly division.

Second Spinoff

“The market for e-motors, inverters and electric-drive systems is expected to have significant growth between now and 2030, and the JV will target this fast-growing global market with a world-class portfolio,” the companies said in a joint media release. “LG will help accelerate Magna’s time to market and scale of manufacturing for electrification components, while software and systems integration are competencies that Magna brings to this venture.”

The tie-up is LG Electronics’ second major investment in the auto industry after it bought automotive-lighting and headlight-systems provider ZKW Group GmbH in 2018 for about 1.1 billion euros ($1.3 billion). Under the terms of that deal, LG Electronics acquired a 70% stake in ZKW Group, with parent LG Corp. purchasing the remaining 30%.

Another LG group company, LG Chem Ltd., spun off its energy-storage and EV-battery business to form LG Energy Solution Co. on Dec. 1.

The latest venture will also have a software R&D center in Troy, Michigan, where Magna’s U.S. headquarters is located, one of the people familiar with the matter said.

LG Magna e-Powertrain will include more than 1,000 employees located at LG locations in the U.S., South Korea and China, and the transaction is expected to close in July, subject to a number of conditions including obtaining LGshareholder approval.

Magna, along with other suppliers in the $1 trillion auto parts industry that are deeply enmeshed in advanced technologies, may be in a bind as large automakers in Europe and China transition to low-volume EV sales, Bloomberg Intelligence analysts Kevin Tynan and Andreas Krohn wrote in a note Dec. 7. But Magna’s electric-cars business can be a platform for growth, Tynan said.

(Updates Magna shares in third paragraph)

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