ENCHEM: The Winning Plan to Dominate the Battery Electrolyte Market?

The success of Korean conglomerates has had a positive trickle-down effect on domestic suppliers, providing them with growth momentum and core capabilities. Due to an increasingly saturated and competitive domestic landscape, it has now become essential for enterprises to think globally to continue their growth trajectories. To achieve this goal, Korean suppliers must navigate supply chain realignment strategies, driven by trade policies such as the Inflation Reduction Act (IRA). What opportunities does the current period of supply realignment present for Korean suppliers such as Enchem?

Thanks to the continuous growth of globally leading companies like Samsung, LG, and SK, Korean suppliers have been able to create a strong track record. Today, it is crucial for Korean SMEs to identify opportunities in supplying oversea territories and to further engage in joint development with these major Korean multinationals (MNCs). Working with these top-tier companies have enabled us to build the competency needed to supply to global giants like CATL and AESC.

In the global battery electrolyte market, the top two companies are Chinese. We are currently ranked third, but companies ranked from fourth to tenth are also Chinese. With the implementation of the IRA, Chinese competitors are gradually being cut off from the American supply chain, making it very challenging for them to enter the U.S. market. This creates a window of opportunity for Korean companies, such as Enchem, which is why we are making aggressive investments in expanding our overseas production capacity.

Experts estimate that electrolyte demand will reach around 2,864,000 tons by 2030, driven by pent up demand from batteries, electric vehicles (EVs), and energy storage systems (ESS). While the electrolyte market is projected to grow rapidly, it remains a niche sector, leading to a market that is expected to become increasingly competitive, especially as major players enhance their production capacities. Considering this situation, what will be the distinguishing features of the winners of the electrolyte industry?

It is true that Chinese companies are striving to venture into Morocco and the U.S., but it is no easy feat. Eventually, we will face head-to-head competition with Chinese competitors, but as of 2024, they haven't commenced operations in plants in either Morocco or the U.S. It is generally assumed that it will take 5-6 years from business plan to commercial production, and taking this into account, the earliest we can begin supplying to customers appears to be 2027.

In contrast, Enchem has stabilized its production since 2022 in North America, and we are now in the process of scaling up and enhancing our global capacity. By 2025, we will commence operations of electrolyte plants in Kentucky, Ontario, and Texas. This creates a significant time gap between us and Chinese competitors. Our primary goal is to preempt the U.S. and EU markets by 2027, achieving economies of scale and maximizing market share to gain a consequent head start on our Chinese contenders.

Regarding who will be the winners and who will pay the hefty price in the electrolyte market, some experts estimate that demand will reach 2.8 million tons by 2030. However, as a materials specialist, we anticipate more than 5 million tons, and I personally envision demand exceeding 10 million tons. We are preparing for this future demand, which could equal a market size of 30 trillion KRW.

That being said, there will be a noticeable difference between those who win and those who lose. Globally, there are about 40 electrolyte specialists, mostly dominated by Chinese players. However, there are only 4 to 5 top tier companies, including Enchem.

While I am unsure about the domestic competition among Chinese companies within China, I know that on a global scale, the winners will be those who swiftly achieve economies of scale and who can secure a market share of 50 to 60% by 2030. This means that as demand increases from 3 million to 5 million to 10 million tons, those who can secure 50 to 60% market share and meet client needs will be the winners.

One of the most important factors in achieving this goal is the localization of production bases. At Enchem, our strategy is to open production hubs within a 500-kilometer radius of our clients’ bases. We are focusing on targeting major battery companies in North America and Europe to achieve more than 50% market share in the global market. By continuing our localized strategy, we have now achieved the highest global localization rate, and through this, we plan to maximize the effect of dominating the market by 2025.

Securing market share and successfully expanding into new markets depend on two core features. First is to secure price competitiveness. Second is to achieve just-in-time delivery of the products that our clients need, based on technological prowess. To achieve the former, we are internalizing our supply chain by integrating raw material procurement within our production network. To attain just-in-time delivery, we are minimizing supply distances between our factories and that of our clients, thereby reducing storage and logistics costs.

To further bolster our competitiveness, we are also developing a lineup of new technologies and products, including NMP recycling, and CNT dispersion slurry. By combining those new products with our electrolyte business within our sites, we will be able to distribute inventory and logistics costs across different product categories, effectively enhancing our operational profitability. This not only allows us to become more cost competitive, but also to to offer comprehensive solutions to our clients.

Out of the four main components of Li-ion batteries, electrolytes are the most impacted by fluctuations in material prices, with experts estimating that around 70% of electrolyte production costs currently come from raw material procurement. What is your strategy to overcome this challenge?

Vertical integration and internalization of raw materials are key to achieving stability and to reduce price fluctuations. To achieve this, technology is paramount. To this end, we have established joint ventures with globally leading solvent and lithium salt makers, and we are already commencing operations.

Another part of our effort is the establishment of the Saemangeum plant, which will produce high quality lithium salt. Once we have stabilized lithium salt production there, we will expand our production to the U.S. mainland, adding yet another competitive advantage to our capabilities in the North American market.

To promote greater adoption of Li-Ion batteries across industries, battery components and materials are becoming commoditized in order to achieve lower prices. In turn, this can squeeze the profit margins of material companies. Enchem has been able to increase its operating margin to 5% in recent years. How do you intend to protect this margin?

I believe that adding value equates to enhancing price competitiveness. In the electrolyte market, our operating margin is currently at 5%, though it fluctuates depending on market conditions. By internalizing lithium salt production, we can secure an additional 3 to 5%, thereby boosting our price competitiveness. Furthermore, localizing raw materials to avoid ocean freight delivery, and being situated within 500 kilometers of our clients, can save another 2% in operational costs. This would increase our operating margin to 12%.

Additionally, achieving economies of scale, where one production site has a capacity of 100,000 tons (equivalent to about 1 trillion KRW), can lead to an additional 3% cost saving. Overall, this strategy would elevate our price competitiveness to around 15% from the current 5%. Through these measures, we aim to provide our products at a lower cost to our clients while protecting and enhancing our margin.

In a previous interview, you mentioned that by 2026, you expect to achieve 2.4 trillion KRW in revenue. Could you elaborate on the key steps to reach this objective?

In the mid to long term, perhaps by 2030 or 2035, global battery consumption is expected to reach 10 terawatt-hour (TWh). Consequently, electrolyte consumption will amount to 10 million tons, making the electrolyte market worth 100 trillion KRW. To prepare for this future, we aim to become the best in class by securing 30% of that 100 trillion KRW market. To achieve this, we are establishing new plants and attracting new clients. By the end of this year, we will have orders from each member of the top 10. By next year, that number will increase to the top 20. This means we will establish local production hubs to meet the total demand.

I believe battery makers outside of the top 20 list will find it very challenging to stay afloat. Therefore, we are focusing on meeting the local needs and demands of these global top 20 battery makers to thrive in the market, and as a result, we can grow together.

North American factory in Georgia, USA

Enchem recently expanded its business portfolio in NMP recycling. NMP is a particular market, where few players control most of the global supply, which has pushed prices high.  The company also entered the CNT conductive slurry dispersion market, a technology growing in popularity. Why did you diversify into these two specific segments? What opportunities did you identify?

We have already established a robust electrolyte production network. To maximize the effectiveness of each site and to reduce fixed costs, we plan to introduce a lineup of different items, including NMP and CNT. As battery demand grows, the NMP and CNT markets will grow accordingly. Currently, there are not many contenders in the NMP recycling and CNT dispersion slurry markets. These are relatively new technologies with high entry barriers and a high potential for growth. As such, this decision could provide us with a first-mover advantage.

Enchem has also invested in the development of its own additive technology. How does this help you better tailor your offers to the demands of clients?

While most electrolyte companies develop their additives independently and focus on internal development, we collaborate with battery manufacturers to develop new additives tailored to their specific requirements and needs. We conduct technological exchanges with the top 20 global battery makers because each has different requirements. Our focus is on targeting these global top 20 or top 10 companies to provide just-in-time delivery and bespoke product development, catering to their needs. Given that each battery maker has different requirements for additives, we are actively engaged in technical exchanges with our customers to meet their needs. It takes a lot of effort and time to provide customized services through these direct interactions, but we are already implementing them, and this is our strength.

We are doing our best to meet and supply the demanding needs of the three major Korean battery manufacturers. By doing so, we're showcasing our competitiveness to other top companies. What sets us apart from our competitors is our complete vertical integration, from raw materials to electrolytes and additives. This allows us to maximize our competitiveness by accommodating various customer demands, such as NMP recycling and CNT dispersion. Enchem's unique technology and complete vertical integration form the foundation for providing one-stop solutions, positioning us to become a leading company in the global market.

On top of drastically expanding its revenue over the past two years, Enchem’s market valuation has also soared, with a stock price that jumped from 60,000 KRW per share just a year ago to reach a peak of more than 360,000 KRW in April 2024. This performance has far outpaced that of your competitors’, despite the fact that they have announced similar expansion plans. What makes Enchem so attractive to investors?

Respectfully, I do not fully agree with you. From my perspective, Enchem is still undervalued by market participants. From the viewpoint of ordinary observers, our share price has soared, but I believe this is due to the base effect of past market valuations. The current market value of Enchem reflects our stabilized production in the U.S., securing a market share of more than 60%. However, this has been part of our long-term plan.

Since Q1 of this year, we have been supplying to Ultium Cells, Company “P”, and Company “T”. This information, once publicly reported, has influenced our market valuation, but we are supplying much more in quantity than what the market is currently aware of. This will likely be reflected in next year’s valuation. There is typically a time gap of about six months to a year between our revenue growth and our valuation. We are currently identifying potential clients in the U.S. and will soon attract new customers, so we are anticipating a brighter outlook.

Enchem’s future outlook in North America is a compelling one. In the U.S., you plan to increase your production capacity to 650,000 tons, representing about 70% of the total U.S. capacity share. On top of that, Enchem is strategically located close to its partners, and is also the only electrolyte company that will integrate raw material production with synthesis technology. Furthermore, policies such as the IRA are set to limit the expansion of your competitors. With such a positive scenario, what risks do you foresee for your US expansion?

Looking back at our history, we have encountered many rough patches and have come out of our comfort zone many times. Each challenge came with risks, but we were willing to take them, demonstrating our confidence. Enhancing our production capacity to 650,000 tons, or even to 1 million tons, in the U.S. is part of our business strategy.

The biggest risk we face is market uncertainty. Given the current price structure in the U.S., there must be sufficient domestic use of EVs to sustain our business. EVs manufactured in the U.S. will not be exported to countries like China, so they must be consumed domestically. If EVs do not sell well, this could be a risk factor for the North American business.

To mitigate this risk, EV prices must be competitive with ICEVs, and the charging infrastructure must be well-established within the U.S. mainland. EVs need to be well-received and accessible to U.S. consumers. However, high interest rates, especially this year, have reduced the purchasing power of U.S. citizens, increasing market uncertainty.

Despite these risks, I foresee high potential for the U.S. market. EV unit sales in the EU, U.S., and China are similar, around 20 million units. However, Chinese consumers tend to prefer mid to low-priced cars, around 20 million to 30 million KRW. In contrast, U.S. consumers prefer higher-priced EVs, ranging from 50 million KRW to over 100 million KRW. This makes the U.S. market much more attractive. In China, EVs with a range of up to 200 to 300 km on a single charge are preferred, but in the United States, EVs with a range of 600 to 1,000 km are expected to be preferred. Additionally, U.S. consumers favor high-quality, costly electrolytes, making the U.S. market five to ten times larger than the Chinese one in terms of potential size.

Another significant aspect of your international strategy has been your expansion into the European Union, where you are establishing a series of production plants in Eastern Europe, like Hungary and Poland, as well as in France. Obviously, Europe differs from the U.S. market, particularly in terms of regulations, including workers' rights and environmental standards. How will you adapt your offerings to meet the specific demands of the European market? Are you currently seeking partnerships to further penetrate the region?

In Eastern Europe, we have operational plants in Poland and Hungary. Poland was established to supply electrolyte to LG, and Hungary to SK and Samsung SDI. In this way, existing overseas factories were established for the purpose of supplying to Korean battery companies. But for the French factory, this marks the first step toward full localization by supplying to local companies. We are considering establishing a factory in Spain in the future, and through this, we aim to strengthen our production capabilities in the European market and achieve sustainable growth.

While environmental and labor regulations may vary across European countries, they are generally aligned. We first ventured into Poland in 2018 and began planning our entry as early as 2015. Over the past decade, we have gained valuable experience through trial and error, and learned the European business practices and regulatory compliance methods. Our operations have been stable without major issues, and now we aim to scale up production based on our accumulated expertise.

Regarding potential partnerships, our primary focus remains on Korean customers, followed by local partnerships, such as the ones we have in France with ACC and Verkor. We also consider collaborations with Chinese companies operating in Europe, such as AESC, CATL, EVE, and Gotion. Additionally, we are exploring partnerships with German and Swedish firms, as well as engaging with new EV battery makers emerging in Europe.

Please imagine that we come back to interview you again in 2032. What goals or ambitions would you like to have achieved by then? What would you like to tell us in that second interview?

We are currently revising and updating our 10-year plan, looking forward to 2035. Our ambition is to evolve from being a global electrolyte specialist to a comprehensive global chemical company. This transformation will involve integrating all processes from design, synthesis, reactions, refining, mixing, dispersion, to back-end processes like filtering. To achieve this primary goal, we aim to diversify our product offerings beyond NMP recycling, CNT dispersion. We plan to venture into other chemical sectors such as those used in vehicles, semiconductors, and medicinal chemistry.

Furthermore, our vision extends beyond traditional electrolytes for EVs. We aspire to develop high molecular electrolytes for robots and explore solid-state or polymeric electrolytes. These innovations aim to enhance reliability and safety, ensuring that users of EVs and robots are protected from hazards like fires and explosions.

In our second interview in 2032, I hope to share our progress towards these ambitious goals and to discuss how our expanded portfolio is contributing to advancements in technology, and human well-being globally.

For more details, explore their website at: https://enchem.net/eng/main.php