South Korean group LG Energy Solution has announced the termination of a KRW3.9tr ($2.7bn) contract with Freudenberg Battery Power System (FBPS), a subsidiary of German conglomerate Freudenberg Group. The decision follows FBPS’s withdrawal from its battery operations, according to a regulatory filing submitted on December 27. The initial agreement covered the supply of electric vehicle battery modules to be assembled into packs for the North American market.
The cancelled contract was part of a broader KRW4.04tr agreement, a portion of which had already been fulfilled. FBPS operated a gigafactory in Midland, Michigan, focused on battery pack assembly, located near LG Energy Solution’s cell manufacturing facilities in Holland and Lansing.
Financial impact and contraction of the US market
This cancellation comes just days after LG Energy Solution terminated another major deal worth KRW9.6tr with Ford Motor Company, bringing the total volume of cancelled contracts this year to KRW13.5tr ($9.4bn). This figure represents more than half of the company’s 2024 annual revenue of KRW25.62tr, signalling a significant reduction in expected demand for electric vehicles.
The North American battery market is undergoing a slowdown, largely attributed to a shift in US energy policy. The withdrawal of the $7,500 federal consumer tax credit has contributed to reduced demand, despite record electric vehicle sales in September. According to data cited by CNBC, electric vehicle sales accounted for 10.3% of the market at that time, compared to a preliminary estimate of only 5.2% in the fourth quarter.
Strategic refocus and customer portfolio streamlining
LG Energy Solution stated that the termination of the FBPS contract would not result in capital losses or additional costs, as no facility investment or customised research and development expenses had been incurred. The company views this move as an opportunity to reassess its customer base, removing those with uncertain commercial prospects in favour of more stable demand sources.
FBPS had initially planned to assemble the modules provided by LG Energy Solution into commercial vehicle battery packs for North American manufacturers. The collapse of this project highlights the challenges faced by equipment suppliers in a market where demand has proven weaker than expected, and public support remains uncertain.
