Shares of auto parts manufacturer Magna International Inc. hit an all-time high on Wednesday after the company announced a deal with LG Electronics to create a joint venture to build components for electric cars.
The new venture, which will manufacture electric motors, inverters and on-board chargers, signifies an ambitious expansion by Magna into the fast-growing electric vehicle market.
"This partnership fully aligns with our strategy of being at the forefront of electrification and supporting automakers with a diverse and world-class portfolio," Magna president and incoming CEO Swamy Kotagiri said in a statement.
Shares in the Aurora, Ont.-based company closed up $7.29 or 8.51 per cent at $92.96 on the Toronto Stock Exchange.
Magna says the deal combines its strength in electric powertrain systems and manufacturing with LG's expertise in component development for e-motors and inverters.
The joint venture tentatively has been called LG Magna e-Powertrain.
Magna and LG's announcement follows other efforts to expand into the market for electric vehicle components by Magna. In 2018, the company announced two joint ventures with Chinese companies to engineer and build electric vehicles.
The joint venture's establishment comes as electric vehicles gain in popularity. Electric vehicle manufacturer Tesla Motors Inc.'s stock is up roughly 650 per cent since the start of this year, signalling exuberance from investors about the market.
Other large automakers such as General Motors have moved rapidly to develop electric vehicles. Both Ford Motor and Fiat Chrysler announced this fall that they are moving toward electric vehicle production at some of their Canadian plants.
That push led to increased investment in electric vehicle technology in recent years, including among Magna's competitors. Canadian auto parts supplier Linamar Corp. said in 2018 that it would spend $500 million investing in new technologies for electric vehicles, such as artificial intelligence and next-generation transmission systems.
Martinrea International Inc., another Canadian automotive parts manufacturer, has also invested in producing components for electric vehicles. In an investor presentation this year, the company said it was projecting that in five years, nearly one quarter of the automobile market will be made up of electric vehicles or hybrids.
Magna and LG's joint venture will include more than 1,000 employees located at LG locations in the United States, South Korea and China.
Michael Robinet, executive director of automotive advisory services at IHS Markit, said similar partnerships have become commonplace in the automotive industry as a way of keeping up with competition.
"Virtually every supplier has alignments, whether in software or in specialized innovations or technologies, because they know they can't move as quickly on their own," Robinet.
Electric vehicles have been part of Magna's business strategy for many years, Robinet said, adding that the partnership with LG will allow them to have greater access to Asian markets.
The agreement is expected to close in July and is subject to a number of conditions including LG shareholder approval.
Magna announced earlier this year that it would be helping to manufacture an electric SUV for startup Fisker Inc. in Europe.
This report by The Canadian Press was first published Dec. 23, 2020.
