Battery maker SK On declares ‘state of emergency’ as EV sales disappoint

Unlock Editor’s Digest for free

A leading South Korean maker of electric vehicle batteries has said it is facing a crisis as its customers grapple with disappointing sales of electric vehicles in Europe and the US.

SK On, the world’s fourth-largest EV battery maker after Chinese giants CATL and BYD and South Korean rival LG Energy Solution, has posted losses for 10 straight quarters since it was spun off by its parent company in 2021. Net debt has more than quintupled in the same period, from Won2.9 trillion ($2.1 billion) to Won15.6 trillion, as electric vehicle sales in the West fell far short of expectations.

With losses snowballing, CEO Lee Seok-hee announced a series of measures on Monday to cut costs and improve operations, describing them as a state of “emergency management.”

“Our backs are against the wall,” Lee wrote in a letter to employees. “We must all work together.”

More radical solutions are also being discussed within South Korean conglomerate SK Group. One option being considered, according to a person familiar with the conglomerate’s thinking, is to merge SK On’s parent company, SK Innovation, with SK E&S, the group’s highly profitable energy subsidiary that specializes in producing liquefied natural gas. The potential merger is set to be discussed at 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 explosion in demand for electric vehicles. However, it has since announced extended layoffs at its plant in the US state of Georgia and postponed the launch of a second plant in Kentucky, a joint venture with key US customer Ford.

Chinese manufacturers CATL and BYD dominate the global battery industry with a combined market share of 53.2 percent, according to South Korea-based consultancy SNE Research. Their production and sales are still concentrated in the domestic market, where EV adoption is much higher than in Western countries.

As Washington and Brussels scramble to prevent a flood of imported batteries from China, South Korean manufacturers LG, SK and Samsung SDI, along with Japan’s Panasonic, have an 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 South Korean battery makers have been “seriously let down” by U.S. automakers, who he said had failed to produce electric cars attractive enough to mass-market consumers to meet their own optimistic sales forecasts.

He noted that as recently as last year, General Motors predicted it would sell 1 million electric cars by 2025. In the second quarter of this year, only 21,930 were sold.

“Korean battery makers didn’t invest blindly — everything they invested was based on order books with fixed volumes and prices,” Bush said. “But the automakers didn’t invest enough in producing affordable, high-quality electric vehicles.”

Analysts say SK is in a worse position than South Korean rivals LG and Samsung SDI, both of which have also cut back on investments. As a late entrant to the global battery race, the company had offered generous pricing terms to customers, which it has now backtracked on.

But Bush argued that while adoption of electric vehicles was slower than expected, the transition to electric vehicles remained “inevitable.”

“As long as SK Group continues to view SK On as a valuable asset and provides it with the support it needs to weather the current storm, its long-term future is likely to be assured,” he said.

Leave a Comment