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LG gears up for new era in auto parts industry

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LG to mass-produce parts for GM Chevrolet Bolt this month

By Lee Min-hyung

LG Electronics is gearing up for a new era in the automotive parts industry, with its vehicle components division set to start mass producing core parts for General Motors' (GM) plug-in hybrid Chevrolet Bolt by the end of this month.

The company recently established production lines at its Incheon research center to make 11 core components for the GM electric vehicle (EV) ― including motors, inverters and various infotainment systems. In June 2013, LG Electronics opened its "Incheon Campus" west of Seoul in its bid to focus more on the promising auto parts industry.

The move comes as the nation's second-largest electronics company has identified its vehicle components (VC) unit as its next key cash cow. The company has been expanding investment and personnel in the VC division since its inception in 2013.

Despite some major contracts with global automakers including GM, the division is yet to post a meaningful surplus. The VC division had a 16.8 billion won ($15.23 million) operating loss in the second quarter.

But the company remains optimistic about its new growth engine, after sales in the first half of the year skyrocketed 47.9 percent compared with a year ago to 1.23 trillion.

"Automakers are very strict in terms of safety and form a long-term relationship, with only a few qualified parts suppliers due to safety concerns," an LG Electronics official said. "That's why it takes more time for us to generate tangible results in the business. We are still in the investment phase."

Park Kyung-ryul, vice president of LG Electronics' VC division, told investors in a second-quarter conference call: "The VC unit is posting double-digit growth in obtaining orders each year."

He said the auto parts business requires a long time for operators to achieve stable profitability due to industry-specific characteristics.

LG Electronics plans to invest up to 400 billion won in the VC unit this year. Given its growth in recent years, expectations are that the auto parts division will drive the firm's overall sales in the second half of the year.

Last month, the company said in a regulatory filing that LG and GM signed a partnership deal in October 2015 for LG to mass-produce parts for the Bolt for six years, starting this month.

Meanwhile, LG Electronics has three core manufacturing facilities for the VC division ― in Incheon, Nanjing in China and Haiphong in Vietnam.

KB Investment and Securities analyst Kim Sang-pyo said in a report: "The VC unit's sales portfolio, focusing mainly on car infotainments, is on a recovery track, as the company has won the large-scale contract to manufacture parts for electric vehicles."

Lee Min-hyung

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