South Korea’s LG Electronics (066570.KS) is building a large-scale chiller production facility in Virginia. The decision comes in response to surging artificial intelligence (AI) data center cooling demand and pressure from global Big Tech customers for local production. This marks the first time LG Electronics has established an overseas chiller production base since entering the business in 2011.

According to industry sources on the 30th, LG Electronics is in discussions with the Virginia state government over factory site selection, investment incentives, tax benefits on equipment purchases, and corporate tax reductions tied to new hiring. Construction is expected to begin as soon as negotiations conclude.

Industry estimates put the investment at around 500 billion won (approximately $364.6 million), significantly exceeding the roughly 200 billion won (approximately $145.8 million) invested in its Pyeongtaek plant in Gyeonggi Province. The Pyeongtaek facility, completed in 2017, serves as LG Electronics’ global core chiller production base with an annual capacity of approximately 1,000 units.

Big Tech Demands Local Production

The direct impetus for this investment is customer demand. LG Electronics is currently in multiple chiller supply contract negotiations with global Big Tech companies, including Microsoft. During contract discussions, these companies reportedly insisted on establishing a North American production network to ensure stable equipment procurement.

For Big Tech firms investing hundreds of trillions of won annually to lead the AI industry, production capacity that can deliver large-scale cooling equipment on time is essential. Financial industry analysts see a high probability that LG Electronics will sign a 2.5 trillion won (approximately $1.8 billion) AI data center cooling solution supply contract with a global Big Tech company in October. Given that AI data center chiller orders in the first half of this year totaled approximately 600 billion won (approximately $437.5 million), a successful contract would represent a mega-project roughly four times the existing order volume.

An industry source said, “We are in discussions with major Big Tech companies regarding data center cooling solution supply,” adding that “the order value could be the largest contract in the ES (Eco Solution) Business Division’s history.”

Why Virginia

Northern Virginia is home to dense AI infrastructure from major tech companies including Amazon Web Services (AWS), Microsoft, Google, Meta, and Oracle, earning it the nickname “the data center capital of the world.” Microsoft plans to build additional large-scale data centers in southern Virginia’s Mecklenburg and Clarksville areas, while AWS and Google are also planning data center construction focused on the central and southern regions.

Local production also offers significant logistics cost and transit time savings. Chillers produced in Pyeongtaek for export weigh dozens of tons per unit, making massive shipping costs and long delivery times major obstacles. Added to this are tax benefits and investment incentives offered by U.S. state governments, as well as reduced tariff burdens.

A local industry source said, “Global new data center capacity is projected to grow from 25GW this year to 70GW by 2031, with approximately 60% concentrated in North America,” adding that “establishing a system to produce and supply chillers locally will put the company in a more advantageous position in the competition for North American data center orders.”

Market Size and Business Outlook

The AI data center cooling solution market is projected to grow from $18.4 billion (approximately 25.2 trillion won) last year to $49.9 billion (approximately 68.4 trillion won) by 2034. To capture this market, LG Electronics announced last month a plan to more than triple its data center HVAC orders this year compared to the previous year and to grow ultra-large chiller revenue to 1 trillion won (approximately $729.1 million) within two years.

Heat generation from AI servers is a key factor driving cooling solution demand. As AI servers equipped with ultra-high-performance semiconductors such as Nvidia graphics processing units (GPUs) and high-bandwidth memory (HBM) proliferate, addressing heat issues inside data centers has emerged as a critical challenge. A single 1GW-class AI data center typically requires about 60 large chillers rated at 5,000RT (refrigeration tons), or about 100 units at the 3,000RT standard. A single mega-project alone can require hundreds of units of equipment.

LG Electronics met with Microsoft CEO Satya Nadella last year to discuss AI data center business collaboration based on the “One LG” framework involving group affiliates including LG Energy Solution (373220.KS) and LG CNS. The Virginia investment is interpreted as a follow-up measure concretizing those discussions.

With U.S. President Donald Trump demanding large-scale investment in the United States from South Korea, this production base establishment exceeds LG Electronics’ previous largest local investment—its Tennessee home appliance plant ($390 million)—and is seen as carrying symbolic significance from an economic diplomacy perspective as well.