The Season of 'K-Battery' Success Has Begun

[Asia Economy Reporter Park So-yeon] Domestic battery companies that have continuously invested in preparation for the dawn of the electric vehicle era are reaping visible results.

The first to achieve this is LG Chem. LG Chem succeeded in turning a profit in the second quarter. Samsung SDI and SK Innovation have not yet made profits from batteries, but profitability improvements are anticipated due to the expansion of European electric vehicle support policies.

◇ The first to show results of 'K-battery' is LG Chem = LG Chem recorded an operating profit of 571.6 billion KRW and sales of 6.9352 trillion KRW on a consolidated basis in the second quarter. Operating profit increased by 131.5% and sales by 2.3% compared to the same period last year.

In particular, automotive batteries turned a profit in the second quarter, with the battery division posting an operating profit of 155.5 billion KRW and sales of 2.823 trillion KRW, marking the highest performance ever.

Although LG Chem had a brief profit in electric vehicle batteries in the fourth quarter of 2018, the significance of this profit turnaround is special.

This achievement was made by maintaining the world's number one market share in electric vehicle batteries, innovating the cost structure, and stabilizing the yield at the Poland factory, thereby establishing a structural foundation for profitability.

When announcing the results, LG Chem stated, "We are smoothly progressing with expansion work according to the goal of increasing production capacity to 100 GWh by the end of this year," and "We expect the profit margin to expand significantly from the second half."

LG Chem has secured an order backlog exceeding 150 trillion KRW, and orders are expected to increase further with factory expansions and increased investments.

Among domestic companies, LG Chem was the first to fully enter the electric vehicle battery business in 2000. Since starting research and development (R&D) that year, it has expanded investments annually. Last year, 30% of total R&D investment was in the battery sector, and facility investment amounted to nearly 4 trillion KRW.

Despite long-term large-scale losses, LG Chem pursued the business seeing its 'future potential,' and after becoming a global market leader, it has now begun generating profits. Internally, this has been met with enthusiastic responses, calling it the "fruit of 20 years of persistent investment."

LG Chem expects not only an annual profit this year but also over 30% growth annually, with profit scale increasing further in the future.

The market predicts LG Chem's electric vehicle battery sales will reach 9 trillion KRW this year, 16 trillion KRW next year, and by around 2024, sales could reach up to 20 trillion KRW, accounting for more than half of total sales.

◇ Samsung SDI and SK Innovation amplify expectations = Samsung SDI and SK Innovation, which announced their second-quarter results ahead of LG Chem, have not yet achieved visible results in the electric vehicle battery sector but confirmed that profitability is improving.

Samsung SDI posted an operating profit of 103.8 billion KRW, down 34.0% from the same period last year. Sales were 2.4586 trillion KRW, up 6.7% from the previous quarter.

Although individual results by business division were not disclosed, it is estimated that automotive battery performance declined due to the impact of COVID-19. However, it was evaluated that Samsung SDI performed well, surpassing the average securities firm consensus of around 70 billion KRW.

Samsung SDI stated that profitability of electric vehicle batteries will improve significantly from the second half, aiming for a standalone profit turnaround in the automotive battery division next year.

The company explained, "There were temporary difficulties due to COVID-19, but we are quickly normalizing," and "This year, we expect to maintain high growth at about 50% compared to last year."

Among the three domestic companies, SK Innovation, a latecomer, is expected to take more time to turn a profit. SK Innovation's battery division posted a loss of 113.8 billion KRW in the second quarter, an increase of 8.9 billion KRW from the previous quarter.

SK Innovation said, "Newly operated overseas battery factories stabilized early, increasing sales volume," but "one-time costs incurred in establishing a global management system increased losses."

SK Innovation is focusing on expanding investments and orders rather than turning a profit, and as the electric vehicle market expands, battery demand and orders are also increasing.

While the three domestic battery companies are navigating smoothly, challenges include intensified competition with Chinese and Japanese companies, yield stabilization and cost burdens from new factory operations.

In the case of LG Chem and SK Innovation, ongoing lawsuits domestically and internationally over trade secret infringements are also pointed out as factors of uncertainty.

This content was produced with the assistance of AI translation services.