S. Korea's LGES Revives Arizona Battery Factory With $5.6 Billion Investment

South Korea's LG Energy Solution Ltd (LGES) said on Friday it would resume a stalled U.S. battery project with a $5.6 billion investment in Arizona to qualify for federal incentives rolled out under the Inflation Reduction Act (IRA).

The world's third-ranked electric vehicle battery maker said in June it was reassessing what was then a 1.7 trillion won ($1.3 billion) investment plan because of "unprecedented" economic conditions, just three months after it was unveiled.

With the new investment plan, LGES joins a growing list of suppliers and car makers expanding battery production capacity in the United States, encouraged by the IRA's $369 billion of subsidies. The company supplies Tesla Inc, Lucid Group Inc and other automakers.

Tesla said last month it will focus battery cell production in the U.S. because of the IRA framework.

The Arizona plant is the second U.S. battery project LGES has announced since the IRA became law in August. The company announced a $4.4 billion battery plant in Ohio with Japan's Honda Motor Co in October.

"The company’s decision to increase investment ...comes from rising demand from EV makers for locally manufactured high-quality, high-performance batteries in an effort to satisfy the Inflation Reduction Act's EV tax credits," LGES said in a statement.

The new Arizona factory will consist of two facilities - one for cylindrical batteries for EVs and another for lithium iron phosphate (LFP) pouch-type batteries for energy storage systems (ESS), LGES said.

Out of the 7.2 trillion won ($5.6 billion) investment, 4.2 trillion won will be spent building the cylindrical battery facility with a capacity of 27 gigawatt hours (GWh), and the rest for the LFP pouch-type battery facility with a capacity of 16 GWh. Both facilities will break ground this year.

"When LGES first announced its Arizona plan, Tesla was probably not in the proposed plant's client list, but it is now likely to be in the list and one of major reasons why investment has increased sharply," said Rho Woo-ho, an analyst at Meritz Securities.

Friday's announcement follows LGES' announcement in January that it had been in "active discussion" with Tesla and EV startups to supply batteries from the proposed factory.

LGES said production of EV batteries from the new plant would begin in 2025 and ESS batteries in 2026.

($1 = 1,290.3400 won)

(Reporting by Heekyong Yang and Hyunsu Yim; Editing by Miyoung Kim, Sonali Paul and Christian Schmollinger)