Let’s take a look at the financial results of SK Innovation, the South Korean conglomerate mainly focused on its Refining, Petrochemicals and Lubricants divisions, which is also one of the largest manufacturers of lithium-ion EV batteries.
The company is rapidly expanding production of battery cells (and battery materials), but according to quarterly reports, it will take some time to turn a profit.
In the first quarter of 2021, the company increased its sales, but recorded a loss:
- Sales: KRW 9,239.8 billion ($ 8.30 billion), up 20% year-on-year
- operational profits: KRW 502.5 billion ($ 450 million)
- pre-tax income: -527.6 billion KRW (-470 million dollars)
The reason for this is the battery-related dispute resolution (with LG Chem’s LG Energy Solution) announced in April.
“However, its pre-tax profit recorded a loss of KRW 527.6 billion. This was attributable to non-operating losses of KRW 1030.1 billion, including foreign exchange losses and the settlement of battery-related disputes. “
The batteries business, included in the category called “Others”, remains only a small part of the whole company, but it is in full expansion. So far, it is not yet profitable.
- Sales: KRW 571.6 billion ($ 510 million)
- operational profits: -200.7 billion KRW (-180 million dollars)
- pre-tax income: -1,160 billion KRW (-1,040 million dollars)
In the first quarter of 2021, SK Innovation increased its battery sales by around 80% year-over-year, but they remain unprofitable. The operating margin is negative at 34% and is worse than in the previous two quarters.
The company explains that this is because of the initial cost of new factories overseas.
“The battery sector recorded sales of KRW 526.3 billion, up about 80% from the previous year (KRW 288.8 billion), due to an increase in Sales volume Operating losses were KRW 176.7 billion, up KRW 67.8 billion from the previous quarter due to higher initial cost of overseas factories. “
- Sales: KRW 526.3 billion ($ 470 million); up about 80% year over year
- operational profits: -176.7 billion KRW (-160 million dollars)
- operating margin: -34%
SK Innovation is investing heavily in new battery factories – in Europe, China and the United States. The company intends to increase its annual output of battery cells by approximately 40 GWh this year, to:
“Along with Plant 1 in Hungary and the Changzhou Plant in China, which began mass production in 2020, other SK Innovation electric vehicle battery plants that are under construction include Plant 2 in Hungary. and Plant 1, Plant 2 in Georgia, USA. a significant increase in profits is expected as factories in Yancheng and Huizhou in China began mass production in the first quarter of this year and, as a result, sales will increase.
With the rapid growth of electric vehicles, SK Innovation plans to make aggressive investments in the battery sector, aiming to achieve a total annual production capacity of over 85 GWh by 2023 and over 125 GWh by 2025 . “
As we can see from the map, the main expansion will be in the United States (22 GWh under construction and 60 GWh announced), which shows how painful the ban would have been without the deal with LG Energy Solution to LG Chem).
Updated list of SK Innovation battery projects
- 4.7 GWh plant in Seosan, South Chungcheong Province, South Korea
Europe – Hungary:
- 7.5 GWh battery plant in Changzhou, China (completed December 2019, online since Q2 2020)
- 20 GWh battery plant (plan) in Yancheng, China (online since Q1 2021)
- battery plant in Huizhou, China (online since Q1 2021)
SK Innovation also produces materials for EV batteries – lithium-ion (LiBS) battery separators. It’s a small but very profitable part of the business:
- Sales: KRW 93.3 billion ($ 84 million)
- operational profits: KRW 31.7 billion ($ 28 million)
- operating margin: 34%
- pre-tax income: KRW 35.1 billion ($ 32 million)
“The materials sector recorded an operating profit of KRW 31.7 billion, up KRW 6.4 billion from the previous quarter, due to cost reductions resulting from increased productivity of the Chinese lithium-ion (LiBS) battery separator plant and lower raw material costs.
SK Innovation produces LiBS in South Korea, and since 2020 also in China. The largest factory is currently under construction in Poland:
“The materials industry is continuously driving the expansion of lithium-ion battery separator (LiBS) installations. The company’s LiBS production capacity is expected to grow from 860 million m2 per year at the end of last year to 1.36 billion m2 by the end of this year. In the second quarter of this year, the further expansion of the factory in China will be completed and serial production of the new line will follow, in addition, serial production of the factory in Poland will begin in the third quarter.
As more and more overseas factories start operating in sequence, the company’s LiBS production capacity is expected to increase to a total of 2.73 billion m2 by 2024, of which 520 million m2 are m2 in Korea, 670 million m2 in China and 1.54 billion m2 in Poland. “