Powering Tomorrow: LS Materials' Investment in Ultracapacitor Technology

Over the last few years, the South Korean industry has lived through a series of supply-chain disruptions, including shortages caused by the COVID-19 pandemic and Japan’s unfamous restrictions on export of semiconductor materials in 2019. As a result, the Korean government and industry made the creation of an independent and resilient supply chain a national priority. From a macroscopic perspective, what is your assessment of the strengths of the South Korean industry? And of the challenges the industry faces?

I want to underscore that the following is purely my personal opinion, as I don't consider myself an authority on this matter. Nevertheless, I'll share my perspective. South Korea stands out as a manufacturing powerhouse; however, we have faced challenges, notably due to the Japanese whitelist exemption and the impact of the COVID-19 situation. These difficulties have exposed the vulnerability of our industry.

While South Korea excels in manufacturing, it's crucial to acknowledge that we rely on imports for our facilities from Japan, source our original materials from China, and have also been adversely affected by the ongoing COVID situation. This makes our industry susceptible to external factors. To address these challenges, our government has focused on strengthening our domestic capabilities in terms of materials, facilities, and devices. Consequently, I believe that, through this crisis, we have significantly enhanced our manufacturing ecosystem.

In summary, South Korea boasts a robust manufacturing sector, but the industry has encountered numerous challenges. The ability to swiftly overcome these crises is a testament to our strength.

In recent months, international governments have rolled out trade policies aimed at promoting supply-chain realignments. One of the best examples has been the Biden Administration’s Inflation Reduction Act, which is offering billions of dollars in subsidies to American companies and trade partners for the development of technologies key to innovative applications, such as clean energy, battery and semiconductors. This policy is creating opportunities for Korean enterprises, as it positions them as an attractive option for the creation IRA-compliant supply-chains. What opportunities does this global realignment create for Korean companies? How well positioned is Korea to benefit from these strategies?

I believe that localization is paramount in seizing these opportunities. However, a significant challenge arises when considering the potential relocation of major companies like Hyundai and Kia to the U.S. In industries such as automobiles, which involve numerous spare parts and a complex network of primary, secondary, and tertiary suppliers, relocating the entire supply chain to the United States poses a formidable task. Large companies with substantial budgets might manage such a move, but for smaller enterprises, it could be exceptionally challenging.

Despite the potential burden on the industry as a whole, the construction of new factories and facilities presents a unique benefit for us. Given our expertise in batteries for AGV (Automated Guided Vehicles), the expansion of electricity facilities, and the need for increased factory capacity, this development is advantageous not only for us but also for LS Cable & System. Although building new manufacturing facilities could be perceived as challenging for the broader industry, from the perspective of LS, it represents a beneficial opportunity.

In 2023, the global supercapacitor market is valued at approximately $2.02 billion, and a significant growth trend is anticipated, with a projected Compound Annual Growth Rate (CAGR) of 14.9% from 2023 to 2033. The rising demand for supercapacitors in various industries, including automotive, renewable energy, and electronics, is expected to create lucrative opportunities for businesses in the coming years. Which applications do you believe will be the primary drivers of this growth?

Ultra-capacitors have been in the market for quite some time, and I see them currently in the early stages of their growth. While the market may appear relatively small now, I anticipate substantial expansion in the future. Currently, one of the most promising sectors we are focusing on is the wind Uninterruptible Power Supply (UPS) and Automated Guided Vehicle (AGV) areas, with AGV showing the highest sales and a projected exponential growth. Another noteworthy market is related to electricity quality, where stability is crucial, particularly in the context of renewable energy. Additionally, the electric vehicle (EV) market is emerging as a prominent sector.

I don't foresee ultra-capacitors operating independently; instead, they are likely to complement lithium-ion batteries. This synergy becomes especially crucial for peak power applications, aiming to stabilize electricity supply and provide a reliable battery system. Consequently, I envision ultra-capacitors being integrated into hybrid systems to optimize overall performance.

Materials' ultra capacitor (UC) product line

We discussed the industry's estimated growth at nearly 15% CAGR, reaching $8 billion by 2033. Do you believe this estimation falls short of what might actually occur? Additionally, can you elaborate on the increasing likelihood of ultracapacitors becoming mainstream, particularly in conjunction with lithium-ion batteries, as you previously mentioned?

The realization of the estimated growth will likely hinge on the application. One area where ultracapacitors could potentially replace lithium-ion batteries is in cold storage. Cold storages, maintained at temperatures of -20 degrees Celsius or lower, pose a challenge for lithium-ion batteries, which can lose 60-70% of their capacity under such conditions. In contrast, ultracapacitors can function normally at temperatures as low as -40 degrees Celsius. Consequently, for ultra-low temperature cold storages, I foresee ultracapacitors fully replacing Automated Guided Vehicles (AGVs).

This is a focal point of our current endeavors. Addressing a significant drawback of electric vehicles (EVs), particularly in the event of accidents impacting the main battery, is crucial. Traditionally, such incidents result in a complete shutdown of all systems, posing a safety risk. An illustrative case involves a Tesla accident in South Korea last year, where a collision left the car door unable to open, leading to a subsequent fire and tragic consequences. To mitigate such risks, there is a need for an auxiliary power source for EVs that can outlast the car's chassis lifespan without requiring active management. Ultracapacitors, with their extended lifespan and rapid charging capabilities, offer a compelling solution.

Once appropriately packaged, ultracapacitors can withstand various circumstances, including fire outbreaks. The rapid charging feature becomes critical, providing emergency power for a vital one to two minutes, allowing the driver to open the door, roll down the window, and maneuver the vehicle in case of an emergency. This unique role positions ultracapacitors in a distinct realm that lithium-ion batteries cannot replicate. Currently, we are engaged in discussions with several automobile companies regarding the integration of ultracapacitors for these specific applications.

Ultracapacitors hold great promise in the EV and hybrid field. Due to their extremely fast charging and discharging times and their longer life span (they can be charged/discharged more than 1,000,000 times, ultracapacitors have advantages to address the shortcomings of lead storage batteries, which are widely in use in the EV field. Despite these advantages, the utilization of ultracapacitors for key processes, such as emergency power and output assistance devices, has yet to be truly generalized. What do you think are the key factors needed to generalize the adoption of ultracapacitors in the EV field? What is the optimal mix or balance between batteries and ultracapacitors in EVs?

One significant challenge we face is that those designing EV battery systems often lack in-depth knowledge of ultracapacitors. Bridging this knowledge gap is a current issue. Furthermore, the differing voltage levels and operational methods between EV batteries and ultracapacitors require the development of electronic circuits, including inverters or converters, from the ground up to enable simultaneous use. This represents the most substantial obstacle in generalizing the adoption of ultracapacitors. It is imperative for us to continually advocate that ultracapacitors can play a vital role for automotive companies. Automotive manufacturers need to recognize the necessity of dual usage of batteries and ultracapacitors, leveraging the strengths of both components. This awareness is crucial for the near future.

As for the optimal balance, the exact proportion or mix of these two components is not yet certain. According to our previous analysis, achieving 100% energy capacity would likely require an optimal mix of 70% lithium-ion battery and 30% ultracapacitor in terms of energy quantity. Ongoing research and collaboration will help refine and establish the most effective balance between batteries and ultracapacitors in the evolving landscape of EV technology.

When considering renewable energy, ultracapacitors have primarily been applied to address the fluctuations in energy production from wind turbines and solar panels. You mentioned that in the EV market, OEM may not be fully aware of the potential uses for ultracapacitors. Do you believe a similar lack of awareness exists in the renewable energy production sector? And how is LS Materials strategically targeting this industry?

The dynamics are somewhat different in the renewable energy sector. In the case of wind energy, there's a critical function known as pitch control, responsible for regulating the power output of wind turbines by adjusting rotor blades. Typically, lead–acid batteries have been employed for pitch control. However, with the rise of offshore wind power installations, the challenge emerges when batteries in wind power generators need replacement every two years. This necessitates individuals to navigate boats to offshore wind parks, climb up 200-meter-high wind generators, and change the batteries—an operation fraught with danger and high maintenance costs. Ultracapacitors, with their notable long lifespan, offer a compelling solution. By substituting lead–acid batteries with ultracapacitors, the need for maintenance is significantly reduced, and the system can operate efficiently for at least 15 years without replacement. Remarkably, in the Chinese market, electric pitch control utilizing 100% ultracapacitors has already replaced the use of lead–acid batteries.

Another market I am actively targeting is electricity quality stabilization, as mentioned earlier. We are currently engaged in a national project with KEPCO (Korea Electric Power Corporation). KEPCO is already cognizant of ultracapacitors, and our collaborative efforts involve the development of lithium-ion capacitors with higher capacities than before. Once completed, these capacitors will be deployed to cover the entire renewable energy electrical grid in Korea. While the adoption of ultracapacitors in the EV market may still be on the horizon, I am optimistic that the renewable energy sector will embrace this technology sooner than anticipated.

When discussing these products, are we envisioning future developments over the next 10 years, or is it feasible to implement them in new projects sooner?

We have already developed a prototype, and by the end of next year, we plan to establish the mass production method. Our aim is to supply these products to the market starting in 2025.

In 2021, LS Materials spun off from LS Mtron’s Ultracapacitor Division. Within one year after the restructuration, LS Materials revenue jumped from 42 billion KRW to more than 161 billion KRW year on year, while profits were multiplied by 4, reaching the 24 billion KRW mark. What were the strategic reasons for this corporate restructuring? What were the main drivers for the growth?

Let me provide a brief overview of the ultracapacitor’s history. We first launched this ultracapacitor in 2002, positioning ourselves as early movers globally. Currently, there is no other company worldwide that has dedicated over two decades to developing ultracapacitors, apart from LS Materials and Maxwell Technologies. Notably, Maxwell Technologies has exited the market. LS Materials commenced mass production of ultracapacitors in 2007. In 2013, we embarked on a significant project, the H-bus (hybrid bus) project in China. This innovative bus incorporated multiple small-sized diesel engines, and we strategically placed ultracapacitors next to these engines, enabling continuous charging to power the bus. This venture proved to be a pivotal opportunity for our growth. However, when the Chinese government discontinued subsidies for this project after four years, the business faced a downturn, and we encountered a period of stagnation. It was during this phase that the wind power, AGV, and UPS markets began to show promise, when LS Materials spun off in 2021.

During this transition, we made a significant investment of 14 billion KRW, a decision that proved to be instrumental. This investment facilitated a threefold expansion of our capacity and revenue. Consequently, the pivotal strategy that propelled us to our current success was the strategic investment made at the opportune moment.

LS Materials primarily focuses on ultracapacitor cells and modules, and we have noted a collaboration with LS Alsco, which specializes in aluminum materials. Could you elaborate on the synergies that can be created between these two companies? Looking towards the future, how do you envision the growth between these distinct yet interrelated divisions?

Historically, I would say there hasn't been a significant synergy effect between these two companies. However, both LS Materials and LS Alsco are targeting the electric vehicle (EV) market. In this shared market, we have common end users, providing an opportunity to promote and advertise products from both companies to the same audience. This alignment represents a substantial advantage for both entities. As mentioned earlier, we are already engaged in advertising activities for our ultracapacitors.

Furthermore, the EV and renewable energy markets are focal points not only for LS Materials and LS Alsco but for the entire LS Group. I anticipate that, within two years, substantial synergy effects will become evident. To succinctly summarize these effects, I would say that we aim to maximize the level of completion of solutions. While some people refer to a complete supply chain as a total solution, acknowledging that we don't manufacture every product, I prefer to emphasize that by utilizing ultracapacitors and aluminum materials supplied by the LS Group, we can elevate the level of completion in the solutions we provide throughout the supply chain. Essentially, we aim to source everything internally within the LS Group.

LS Group recently unveiled its Vision 2030, aiming to double corporate assets by investing in next-generation technologies, particularly batteries, electric vehicles, and semiconductors. What role or position does LS Materials play in achieving LS Group’s Vision 2030?

To illustrate the concept of a complete solution, consider LS Electric, LS MnM, and Cable & System within the LS Group. LS Electric produces a product called Statcom, used for stabilizing electricity supply. LS Materials aims to manufacture an Enhanced Statcom, requiring ultracapacitors. Without ultracapacitor technology at LS Materials, LS Electric would need to source ultracapacitors externally. However, by having ultracapacitors in-house, LS Materials contributes to the creation of a comprehensive solution within the LS Group.

Additionally, LS MnM recently collaborated with L&F Corp. to establish a new precursor factory. If ultracapacitors continue to grow in demand, similar electrical materials will be required in the future. LS Materials can collaborate with LS MnM for this business as well.

For LS Cable & System, we supply ultracapacitors for wind turbines. LS Alsco manufactures the conductor, called Keystone, for submarine cables linking offshore wind farms to the land. Substations controlling the quality of electricity delivered from offshore wind farms to the land require ultracapacitors. In this manner, we provide parts and materials to optimize the entire electricity system, showcasing the synergy effect created within the LS Group.

Employees of LS Materials manufacturing capacitors at Gunpo Factory

In 2023, it was announced that LS Materials would soon conduct an IPO, aiming to raise a significant amount of capital. I've read in a few articles that you are looking to use that capital for a more aggressive overseas strategy and expansion. Going back to the beginning of the interview, you mentioned the EV market as a priority, AGV as a key driver of growth, and wind turbines as a key market as well. There's a lot happening. What is your vision if the IPO were to happen, and with that inflow of capital, what do you aim to achieve in LS Materials within the next five years? How do you envision positioning the company in the next five years?

Through the IPO, we plan to secure an investment of 45 billion KRW, with 35 billion KRW allocated for the CAPEX investment of ultracapacitors. As mentioned earlier, in 2021, we invested 14 billion KRW right after the spin-off, resulting in a tripling of profits. Building on that success, with an additional investment of 35 billion KRW, we anticipate doubling the profit relative to the invested amount. The urgency behind pursuing the IPO quickly stems from the fact that the ultracapacitor production facility is nearly comparable to that of the lithium-ion battery.

For a lithium-ion facility, the process involves waiting for more than two years to order and receive the necessary parts and equipment for constructing the production facility. Therefore, through the IPO, our goal is to invest in the CAPEX of our main equipment. By placing an order in June, we can receive the equipment two years later. This aligns perfectly with the time when the markets are expected to surge. Hence, the reason for expediting the IPO process is to secure funds, invest in CAPEX, and position ourselves ahead of the market boom. We aim to be well-prepared and strategically positioned in the emerging landscape of the market.

You mentioned that 30% of your revenue is currently generated from the U.S. Do you anticipate this trend continuing or increasing as you expand production and promote the use of ultracapacitors for various applications?

From my understanding, the renewable energy market in the U.S. is experiencing exponential growth. I firmly believe that the U.S. market will continue to expand. What's fortunate is that ultracapacitors are not currently subject to the Inflation Reduction Act (IRA). Therefore, our plan is to initially grow this business in Korea and subsequently expand into international markets.

LS Materials CEO Young-ho Hong

The company is currently at an incredibly exciting juncture with the IPO and the expansion into new business ventures. Is there a personal goal that you would like to achieve during your tenure as the president of LS Materials?

I aspire to grow the company to at least double its current size. This way, I can provide larger opportunities to all of my colleagues, including the CFO and COO. I consider this to be my ultimate and final goal.

For more details, explore their website at https://www.lsmaterials.co.kr/ennew/main/main.html