SK Innovation Supplies Batteries to Chinese Electric Vehicle Company for the First Time...Local Market Strategy Pays Off

Contract with Xiaoping, One of China's Top 3 Electric Vehicle Companies
Local Production of 50GWh Scale Within 3-4 Years

An electric vehicle battery factory in Changzhou, established by SK Innovation, Beijing Automotive, and Beijing Electric Vehicle Co. The investment was confirmed in 2018 and the factory was completed by the end of the following year.

[Asia Economy Reporter Choi Dae-yeol] SK Innovation is reported to have agreed to supply batteries to an electric vehicle manufacturer in China. This is attributed to the fact that, despite a challenging competitive environment due to aggressive moves by local Chinese battery companies, SK Innovation had early on established a local production system.

According to industry sources on the 6th, SK Innovation recently signed a battery supply contract with the local electric vehicle company Xiaopeng. Xiaopeng is a new company considered one of the top three local electric vehicle manufacturers alongside Nio and Li Xiang, and it has been known to source batteries from CATL. China, along with Europe, is one of the two major electric vehicle markets where competition among global automakers as well as battery companies is fierce.

It is understood that SK Innovation’s proactive expansion and local market penetration efforts have been effective. Since 2018, SK Innovation has been working to increase its local market share by starting the Changzhou plant in China together with Beijing Automotive, and subsequently planning joint ventures with local battery company EVE to build plants in Yancheng and Huizhou. Furthermore, SK Innovation recently finalized plans to build an additional battery plant in Yancheng and decided to invest an additional $1.06 billion (1.2326 trillion KRW) in its local subsidiary earlier this month.

Based on the investment amount, it is expected that SK Innovation will have a production capacity of around 50GWh in China within the next three to four years. While investing trillions of won to establish production facilities in China, the company is also engaged in the promising swap battery business and is considering China as one of the candidate locations for a business utilizing recycled batteries.

As the battle for dominance in the electric vehicle battery market intensifies, industry insiders predict that success will ultimately depend on whether timely and sufficient investments are made in expansion decisions and research and development processes. Based on estimated battery usage derived from global electric vehicle sales, SK Innovation recently surpassed Samsung SDI to rank fifth. This is the background behind SK Innovation’s keen interest in the battery business spin-off scheduled for the mid of this month’s extraordinary shareholders meeting.

The company plans to separate the battery business, which includes electric vehicle batteries, E-mobility, and energy storage systems (ESS), while SK Innovation will continue as a holding company focusing on investments in areas that can create synergy with the battery business.

Although the stock price showed weakness after the spin-off decision, securities firms advise focusing on future growth potential. Hwang Kyu-won, a researcher at Yuanta Securities, predicted, "The effect of market share increase is expected to outweigh concerns about equity dilution caused by the physical spin-off of the battery business." Morgan Stanley also recently stated in a report, "Given the current valuation of the newly established battery company, there are limitations in raising investment funds through an IPO, so the IPO will take at least more than a year," and evaluated that it is still too early to apply SK Innovation’s ‘holding company discount.’

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