Feud disrupts car battery supplies

Light at the end of the tunnel? Electric vehicle companies such as Tesla, left, may be hit by a row between South Korean car battery makers unless the dispute is resolved. (AFP)
Updated 27 November 2019

Feud disrupts car battery supplies

  • Tit-for-tat lawsuits threaten launches of electric vehicles by some of the world’s biggest carmakers

SEOUL: In 2018, South Korea’s SK Innovation beat its larger, local rival LG Chem to a multibillion-dollar deal to supply German carmaker Volkswagen with electric vehicle batteries in the US.

With great fanfare, SK Innovation (SKI) broke ground in March on a $1.7 billion factory in Commerce, Georgia, about 200 km from VW’s Chattanooga plant, which will be the automaker’s electric vehicle hub in the US.

LG Chem (LGC) had other ideas.

Stung by missing out on the VW deal to the new kid on the block and the departure of 77 employees for its rival across the Han River in Seoul, LGC took SKI to court in the US in April accusing it of misappropriating trade secrets.

Fast forward seven months and the two firms have hit each other with US lawsuits for battery patent infringements in a bitter row that threatens to disrupt the launches of electric vehicles (EVs) by some of the world’s biggest carmakers.

US court filings reviewed by Reuters show the feuding firms are trying to stop each other from importing and selling EV batteries destined for the SUVs VW will build in Tennessee as well as GM’s Bolt, Ford pickups, Jaguar’s I-Pace, Audi’s e-tron and Kia Motor’s Niro.

At stake is the Korean firms’ ability to supply automakers in the US with batteries just as the car producers are scrambling to lock in supplies with lucrative contracts ahead of an expected surge in demand, according to court filings by the two companies and several industry experts.

“Whoever loses the fight would suffer a fatal blow, unless the two reach a settlement. This will also be a setback for automakers,” said Cho Jae-phil, a professor at Ulsan National Institute of Science and Tecnology who worked previously at another Korean rival, Samsung SDI.

Ford spokeswoman Jennifer Flake said that it was encouraging LGC and SKI to resolve their conflict without litigation and that it believed there was sufficient demand for multiple suppliers.

“We are aware of the issue. As a normal course of action, we have business continuity plans in place to protect our interests,” Flake said in an emailed statement to Reuters.

GM spokesman Patrick Morrissey said that the company was aware of the dispute and at this point it did not expect any impact on the production of its Chevy Bolt electric vehicle.

Kia, Jaguar Land Rover and Volkswagen, which also owns Audi, declined to comment.

Volkswagen has said that it is worried there will not be enough batteries for all the EVs it plans to launch in the next five years, partly because producers such as LGC and China’s CATL do not
have enough skilled workers for new plants in Europe to ramp up output quickly.

According to Korea’s battery industry tracker SNE Research, the market for EV batteries — the most expensive and important component in the vehicles — is set to grow 23 percent a year to reach $167 billion by 2025, making it bigger than the global memory-chip market which is expected to be worth $150 billion by then.

In one court filing, LGC said its rival poached employees working on its own project to supply batteries for VW’s MEB electric vehicle architecture — and that SKI only won the VW contract because it had misappropriated trade secrets.

SKI has denied stealing trade secrets, saying its staff signed agreements not to use information from former workplaces. “We value intellectual property,” a spokesman for SKI said.

If the US International Trade Commission (ITC) rules in favor of LGC on June 5, when it is due to make a preliminary ruling, that could jeopardize SKI’s plans to supply VW in the US with batteries from Georgia or a new factory in Hungary, according to court filings.

In April, LGC asked the ITC to block SKI from bringing batteries and components into the US, as well as manufacturing systems needed for US production which is scheduled to start in 2022.

HIGHLIGHTS

• SK Innovation and LG Chem locked in US legal battles.

• Automakers worried the feud will hit battery supplies.

• Ford encouraging the companies to bury the hatchet.

The SKI spokesman said that there had been no change to its schedule for the factory, which will have the capacity to make batteries for more than 200,000 EVs a year. He said SKI had received inquiries about the lawsuits from customers, including if they would have an impact on supplies, without elaborating.

LGC said that a final ruling on the case would be made on Oct. 5 next year but it asked the ITC earlier this month to make a so-called default judgment against SKI quickly.

According to a memo obtained by Reuters on Wednesday, the Commission’s investigative staff recommended a motion in favor of LGC as it is “the most appropriate sanction for Respondents’ (SKI’s) widespread spoliation of evidence.”

Evidence spoliation is destruction or alteration of evidence that may be used in a legal proceeding.

The staff also said that a two-day hearing may be held “because of the severity of the allegations of misconduct and the extra- ordinary nature of the relief requested by (LGC).”

SKI denied the allegation of evidence spoliation in a statement on Wednesday, saying it is “sincerely responding to any investigation by the ITC” and its statement of position filed with the panel will clear the “groundless” accusation.

The patent infringement lawsuits lodged by the companies in the US, meanwhile, mean that if one, or both, lose they probably will not be able to market products using the patents in question in the country, the companies said in court filings. The two have taken their feud to South Korean courts as well.

LGC said in a statement that it would impossible to design around its patents while SKI said that losing the patents case could create “substantial setbacks” to its battery business.

SKI and LGC said there had been no supply disruptions yet.

LGC was an early industry force to be reckoned with, winning a deal in 2008 to supply batteries for GM’s Volt, the world’s first mass-market, plug-in hybrid car, and it has since worked with almost
every EV maker including Tesla.

But LGC has been grappling with an exodus of workers: 1,258 staff jumped ship from 2016 to 2018, according to its sustainability reports. The company told Reuters the total number of staff who have joined SKI since 2016 has risen since it filed its complaint in April to about 100.

The bitterness of the fight is worrying Korean government officials on the grounds it could damage the firms’ reputations and let rivals win market share from South Korean companies.

Lawmakers have called on the government to intervene and Industry Minister Sung Yoon-mo said in October that it was watching the dispute closely to see how and when it could play a role to bring about a “positive outcome for the country overall.”

Beejay Kim, a battery consultant, said that Volkswagen may have to broker a truce as the dispute could disrupt not only battery suppliers but also reduce competition between its vendors.

“No one wants them to fight till the end,” he said.


INTERVIEW: All eyes on Starzplay as lockdown reaps rewards

Updated 32 min 28 sec ago

INTERVIEW: All eyes on Starzplay as lockdown reaps rewards

  • CEO Mazen Sheikh sees business soar as Saudi viewers turn to streaming services

Mazen Sheikh has had a good lockdown.

The founder and CEO of Starzplay, the Middle East’s leading entertainment streaming channel, saw his business soar as curfews, social distancing and travel restrictions left people with little to do apart from slump in front of a TV and binge watch for hours on end.

“I think when the whole situation was unfolding, we were trying to think which way is up and which was down, both on a personal level and also as a company — what it means for our subscribers. It was nerve-wracking in the beginning,” Mazen Sheikh told Arab News.

In the region, it was Starzplay subscribers chose to watch, rather than Netflix or other streaming services, in English and in Arabic.

“What we benefited from, of course, was all the people staying home, but one of the things that worked in our favor was that we are an organization based and headquartered here, and we were able to adapt and localize our services much faster than anyone else,” he said.

“In Saudi Arabia, you can sign up for Starzplay via STC, Mobily or any of the other services. You can sign up with your mobile phone number. Netflix came to this region with a very US-centric mindset, thinking that everyone had a credit card and that having a credit card is a norm in the world. In fact, the reality is different, especially in Saudi. Not everyone has a credit card,” he added.

“So, through one bill where you pay your landline and your broadband, you can also have access to Starzplay on the same bill. You can just download onto your smart TV,” he added.

Starzplay has been in business for five years, and while it is probably not as well known as Netflix, it has been making big inroads into the region, especially Saudi Arabia.

The Kingdom accounts for 40 percent of total revenue, while almost half of all consumption in the Middle East and North Africa region comes from Saudi viewers.

And what have they been watching during the long weeks of lockdown? 

Lots of “Vikings,” “The Office” and Turkish-made romantic soap “Jusoor Wal Jamila.” 

Saudis on average watched more than 18 hours of Starzplay in May, compared with less than 12 a year before.


BIO

BORN: Islamabad 1970.

EDUCATION

  • Schooling in Dubai, UAE.
  • Oklahoma State University, US.
  • University of Kansas, MBA.

CAREER

  • Various executive roles in media and communications, US.
  • Chief sales and operations officer, OSN, Dubai.
  • CEO and founder, Starzplay.

“The beauty is that everyone has a mobile phone. We were there in the market with the right product, the right content, but also the right distribution so the masses can actually sign up for our service. It really benefited us.

“It was not just that we were a streaming service. The whole category benefited from the lockdown, but we were the only one in the market that had this kind of distribution and payment arrangements. We were the only one available to the masses,” Sheikh said.

It is not just the distribution platform that is different from Netflix. Starzplay takes a distinct stance on content, too, as Sheikh explained.

“Our industry is evolving in a simple and predictable way. What is happening is that the more Netflix has gone into its own originals, the more studios see them as a competitor. So studios have been pulling their content away from Netflix.

“Until now, with what comes out of Hollywood and the UK, 95 percent of English-language content was produced by seven or eight studios. In the UK it’s the likes of the BBC and ITV, while in the US it’s Warner, Disney, Sony, Showtime, CBS, all the major studios,” he said.

“So, the way the industry is evolving is that if you want Netflix originals, you go to Netflix, if you want anything else you go to Starzplay,” he said.

Sheikh reeled off an impressive list of top shows on his platform. “Big Bang Theory,” “Billions,” “Grey’s Anatomy” and “Britannia” are among them, while younger viewers soak up “The Flash,” “Supergirl” and other DC titles made by Warner Studios.

Starzplay has also made its first foray into original content, tailored for a Middle East audience, with the series “Baghdad Central.”

“Data is the new oil, they say, and ‘Baghdad Central’ was the result of our experience over five years of consumption history, with billions and billions of minutes consumed. So based on what people were consuming in our key markets and with those insights, we produced our first original,” Sheikh said.

“Baghdad Central” was launched in March with a big name Hollywood actor — Corey Stoll from the award-winning series “House of Cards” — as well as top British and Arab actors.

“We wanted to bring a show to the region that combined the best of the three. It was shot in Morocco in partnership with UK and US producers,” he explained.

That kind of content has pulled in the viewers during lockdown. The figures show Starzplay hit a peak of 6.5 million daily minutes of consumption in Saudi Arabia in the middle of April, compared with about 2 million before the pandemic lockdowns.

Existing viewers are also watching more. The average Saudi spent 28 minutes daily in front of a Starzplay show before the lockdown. That more than doubled to one hour as movement outside the home was restricted.

“To put that into perspective, it took us five years to go from zero to 2 million minutes a day, and it took us six weeks to go from 2 million to 6.5 million. We did more consumption growth in six weeks than we did in the first five years,” Sheikh said.

He is reluctant to forecast how many of these consumers will stay with Starzplay as the lockdowns are eased around the world and the region. 

“I’m expecting some churn, so it’s tough to predict what the base will look like later in the year. We saw tremendous growth, but as the lockdown eases I think we’ll see some churn on those subscribers,” he said.

But even as the lockdown are eased significantly in the region, consumers are not going back to pre-pandemic levels. There is likely to be a permanent shift in demand for Starzplay in the “new normal” environment.

“Unlike Netflix, one of the challenges we had in the region is that the brand awareness and content awareness of our service was comparatively low. One of the things that has happened is that because of increasing demand and awareness, people got to find out about Starzplay. People experienced that and connected the content to our brand.

“That is going to be an enduring and lasting benefit for our company. You cannot unlearn it. I’m expecting some churn in high sign-ups and reduced consumption volumes, but the lasting benefit we’re hoping for is the brand awareness and content awareness that was created,” he said.

That kind of growth is likely to accelerate Starzplay’s evolution from a privately funded startup to a listed public company. It has raised $125 million over its five years, from some pretty impressive investors, including US media giant Lionsgate, the big financial firm State Street Global Advisers, and Nordic investment firm SEQ, which backed Starzplay from the beginning.

With profitability just around the corner, Sheikh does not see the need for further funding, especially as investment sources have dried up during the uncertainty of the pandemic period.

“During COVID times, when consumption and new subscribers were going through the roof, the flip side was that we realized that capital markets were going to be out for 2020. Lucky for us, we are well capitalized, and we are not in a situation where we need to use funds. This is not a good time to be out there raising money,” he said.

“The goal is to serve our customers and also create shareholder value. There are multiple ways of doing that. One is that you generate cash and shareholders benefit from cash dividends. That’s the traditional model. The more high-growth model that is more applicable to companies like us is shareholders push for more growth and expansion to increase the enterprise value of the company,” he said.

Sheikh has set his medium-term sights on a public listing. “In the long run the goal is to continue to grow the business, and in the next three to five years to get into a position where we can list the company on the London Stock Exchange.

“We haven’t absolutely decided that, as it’s so far out. I’d say what we’re looking to do is list ourselves, and if not in London, then other markets, local or London. That’s the ambition, to look to IPO on London or other markets. We’re not there yet. We’re still two to three years away from a decision, but that’s our ambition,” he said.