SK On, a Hot Potato... Begins Personnel Reshuffle

One Week Until Management Strategy Meeting
SK On Needs Over 10 Trillion KRW Capex Going Forward
Must Turn Profitable for Final Goal of IPO

Decision-making surrounding SK On, the core of SK Group's business rebalancing, is facing difficulties. The SK Management Strategy Meeting, where Chairman Chey Tae-won and other top executives of the group gather, is just a week away, but they are still deliberating over the relocation scenario of SK On, the battery business company considered the beginning and end of the rebalancing.

Six factories under construction... more than 10 trillion won needed going forward

According to the business community on the 21st, the decision on whether to relocate SK On will be made at the SK Management Strategy Meeting to be held on the 28th at the SKMS Research Center in Icheon, Gyeonggi Province. Currently, it is highly likely that the power generation business division and LNG (liquefied natural gas) business unit within SK E&S, which can serve as a cash cow, will be merged, but there are quite a few variables to consider.

SK On, SK Group's battery business company, is currently operating or constructing 14 battery factories domestically and abroad. Eight factories are currently operational, and six more are under construction. After 2025, production capacity will reach 280 GWh, which is enough to produce batteries for 3.5 million electric vehicles annually (based on 80 kWh per vehicle).

As SK Group is building unprecedented large-scale overseas factories in its history, investment costs are snowballing. The annual capital expenditure (CAPEX) of SK On, launched at the end of 2021, increased to 5 trillion won in 2022, 6.8 trillion won in 2023, and 7.5 trillion won in 2024. About 20 trillion won will be spent by this year, but more than 10 trillion won in additional capital investment is still needed. SK Innovation has provided loan guarantees to SK On so far, but since the credit rating downgrade in March, interest burdens have increased. SK Innovation's debt doubled in four years from 21.3212 trillion won in 2019 to 50.7592 trillion won at the end of last year. Because of this, there are also forecasts that SK Group might consider other options.

SK On to undertake personnel renewal and organizational efficiency

After the SK Management Strategy Meeting, SK On is expected to first initiate personnel renewal. SK On is preparing for organizational and personnel restructuring under Vice Chairman Yoo Jung-joon’s leadership. It has already begun full-scale organizational reorganization by dismissing Sung Min-seok, the former Chief Commercial Officer (CCO). The focus is on strengthening overseas manufacturing and business capabilities. SK Group has lacked large-scale manufacturing experience overseas so far.

Recent sales personnel appointments have concentrated on individuals with comprehensive manufacturing experience. This includes CEO Lee Seok-hee, a former SK Hynix engineer, and former CCO Sung Min-seok, who was an engineer at Ford. Following them, it is highly likely that more personnel with manufacturing experience will be recruited. Organizational efficiency through reducing the number of executives and merging departments is also a likely option. The shoulders of Choi Jae-won, Senior Vice Chairman of SK Innovation and younger brother of Chairman Chey Tae-won, are expected to become heavier. Senior Vice Chairman Choi is now responsible for all core group businesses except semiconductors and telecommunications, including refining, petrochemicals, power generation, hydrogen, and batteries. He must maximize profits from existing core businesses while desperately striving for SK On’s return to profitability.

Business strategy revision is also inevitable. Until now, SK On has pursued a strategy of scaling up to gain competitiveness as a 'latecomer' battery cell company, but now it must focus on strengthening fundamentals. Since large-scale factories like BlueOvalSK require a large workforce for mass production, hiring cannot be drastically limited, but efficiency improvements to strengthen fundamentals before the initial public offering (IPO) are necessary. A battery industry insider said, "SK On, as a latecomer, has made aggressive investments so far, but this has backfired, leading to financial difficulties. As large-scale factories are sequentially launched, they must focus on qualitative growth tasks such as yield improvement, customer diversification, and margin maximization."

Ultimately, the final destination of 'saving SK On' is the IPO. SK Innovation announced at the regular shareholders' meeting in March this year that SK On's IPO would be "as early as 2026, or at the latest 2028." Samsung Securities researcher Cho Hyun-ryeol stated, "Investment sentiment recovery will be possible only when the visibility of SK On's profit and loss improvement is secured."

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