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A leading South Korean producer of electric vehicle batteries has declared itself in crisis as its customers struggle with disappointing EV sales in Europe and the US.
SK On, the world’s fourth-largest EV battery maker behind Chinese giants CATL and BYD and South Korean rival LG Energy Solution, has recorded losses for 10 consecutive quarters since being spun off by its parent company in 2021. Its net debt has increased more than fivefold, from Won2.9tn ($2.1bn) to Won15.6tn over the same period, as western EV sales have fallen far short of its expectations.
With losses snowballing, chief executive Lee Seok-hee announced a series of cost-cutting and working practice measures last Monday, describing them as a state of “emergency management”.
“We have our back against the wall,” Lee wrote in a letter to employees. “We should all pull together.”
More radical solutions are also being discussed within the South Korean SK Group conglomerate. One option under consideration, according to a person familiar with the conglomerate’s thinking, is that SK On’s parent, SK Innovation, will be merged with SK E&S, the group’s highly profitable energy affiliate that specialises in liquid natural gas production. The potential merger is set to be discussed at the board level this month.
SK On has made a series of aggressive investments in the US and Europe in recent years, betting on a widely predicted boom in demand for EVs. However, it has since announced extended lay-offs for workers at its plant in the US state of Georgia and delayed launching a second plant in Kentucky, a joint venture with its principal US customer Ford.
Chinese producers CATL and BYD dominate the global battery industry with a combined market share of 53.2 per cent, according to South Korea-based consultancy SNE Research. Their production and sales are still concentrated in its domestic market, where EV adoption has been much greater than in western countries.
With Washington and Brussels seeking to prevent a flood of imported batteries from China, South Korean makers LG, SK and Samsung SDI — along with Japan’s Panasonic — have been given the opportunity to capture future growth in western markets.
In the US, non-Chinese battery makers including SK On have benefited from billions of dollars in subsidies under President Joe Biden’s Inflation Reduction Act.
But Tim Bush, a Seoul-based battery analyst at UBS, said the South Korean battery makers had been “badly let down” by US car manufacturers, which he said had failed to produce EVs sufficiently attractive to mass market consumers to meet their own bullish sales projections.
He noted that until as recently as last year, General Motors was forecasting it would sell 1mn EVs in 2025. It sold just 21,930 in the second quarter of this year.
“The Korean battery makers haven’t been making blind investments — everything they invested was based on order books with fixed volumes and pricing,” said Bush. “But the automakers didn’t invest enough in producing high-quality affordable EVs.”
Analysts said SK was in a worse position than South Korean rivals LG and Samsung SDI, both of which have also pared back their investments, because as a late entrant to the global battery race, it had offered its customers generous terms on pricing that were now coming back to haunt it.
But Bush argued that while electric vehicle adoption had proved slower than anticipated, the transition to EVs remained “inevitable”.
“As long as the wider SK Group continues to see SK On as a trophy asset and gives it the support it needs to weather the present storm, then its long-term future is likely to be assured,” he said.