Will SK On Hit a 1 Trillion Won Jackpot?...ESS Outshines EVs as the Unexpected Winner [Jung-Hwak ON]

"Reduce Dependence on China"
Intensifying Security Competition Over Battery Supply Chains

Three Major Battery Makers Accelerate North American ESS Market Push

From EV to ESS Expansion... SK On Shifts Production Strategy

Batteries are being re-evaluated as national security assets, extending beyond their role in eco-friendly industries. This shift is driven by the proliferation of artificial intelligence (AI) data centers and the restructuring of supply chains away from China, prompting the United States and Europe to accelerate the development of domestic battery supply networks. Industry analysts note that the recent move by Korean battery manufacturers to shift their strategic focus from electric vehicles (EVs) to energy storage systems (ESS) is closely linked to these market changes.

SK On Georgia plant overview. SK On

According to the battery industry on May 16, the Center for Strategic and International Studies (CSIS) in the U.S. recently published a report titled "A New Phase for the U.S. Battery Industry," defining the battery sector as a core industry for both the economy and national security. The report analyzed that the expansion of AI data centers, electrification of power grids, and changes in defense systems are converging to make the battery supply chain a strategic infrastructure.

In particular, the report pointed out that dependence on a China-centric battery supply chain is one of the key security risks for the United States. It explained that as future weapons systems—such as drones, electric combat vehicles, and energy weapons—are rapidly electrified, securing a stable battery supply chain is directly linked to national competitiveness.

Within this context, the strategic value of Korean battery companies that have established manufacturing bases in the United States is increasing. As the U.S. is restructuring its supply chain to reduce reliance on Chinese batteries, Korean companies with local production capabilities are poised to serve as alternative supply sources. In fact, the U.S. is simultaneously strengthening support for domestically produced batteries through the Inflation Reduction Act (IRA) and Advanced Manufacturing Production Credit (AMPC), while expanding regulations on Foreign Entities of Concern (FEOC).

The growing attention on Korean battery companies is due in part to the fact that ESS can respond quickly to increasing power demand thanks to much shorter construction times compared to large-scale power generation and transmission infrastructure. While data centers can be built in two to three years, expanding transmission grids and power generation infrastructure can take up to seven to ten years. For this reason, in the short term, the rapid deployment of renewable energy sources such as solar and wind power is inevitable. Given the high output volatility of renewables, the installation of ESS is also on the rise.

A view of the ESS (Energy Storage System) facility in California, USA, supplied with batteries by Samsung SDI. Samsung SDI

In fact, in California last year, 87% of newly installed solar power facilities were built together with ESS. The battery attachment rate for Sunrun, a U.S. residential solar company, rose from 15% in the first quarter of 2023 to 69% in the first quarter of this year. According to Hana Securities, global new ESS installations reached 68.5GWh in the first quarter of this year, marking a 28.8% increase compared to the same period last year. Of this, grid-scale ESS installations accounted for 51.3GWh, up 36.9%, driving the growth of the market.

Korean battery companies are actively targeting the North American ESS market. LG Energy Solution is expanding ESS supply in North America, leveraging its Michigan plant and collaborating with companies such as Hanwha Q CELLS to broaden ESS battery supply partnerships. Samsung SDI is also focusing on strengthening its lithium iron phosphate (LFP) battery business for ESS in the U.S. and increasing its ESS order book in North America.

The industry is also paying close attention to changes in strategy at SK On, which previously had a high production ratio centered on EVs. SK On is currently converting part of its EV battery production lines at its Georgia plant in the U.S. to ESS production and is planning to establish an LFP-based ESS production line with a capacity of up to 6GWh in Seosan, South Chungcheong Province. Starting in the second half of this year, the company plans to begin mass production of ESS batteries in the United States.

Industry observers view this not as simple production diversification, but as a strategic shift from an "EV-centric system" to a "power infrastructure-centric system." In particular, as the U.S. strengthens policies to reduce reliance on a China-centric ESS supply chain, the importance of local production capabilities in the U.S. is growing even further.

SK On is also accelerating its efforts to expand ESS orders. Last year, the company signed a contract to supply 1GWh of LFP ESS batteries to U.S. renewable energy company Flatiron, and it is reportedly in discussions for additional contracts totaling more than 10GWh with multiple customers. The industry estimates that the total contract volume may reach approximately 1 trillion won.

LG Energy Solution Michigan Holland Plant, USA. LG Energy Solution

Korean battery companies are also striving to secure a competitive edge in local production in Europe. The European Union (EU) recently released a draft of the Industrial Acceleration Act (IAA), which aims to increase the local production ratio of key components for EVs and batteries. The intention is to reduce dependence on the Chinese battery supply chain and build an industrial ecosystem within Europe.

SK On, for instance, has secured a total production capacity of 47.5GWh in Europe alone, with its Komarom Plant 1 (7.5GWh), Plant 2 (10GWh), and Ivancsa Plant (30GWh) in Hungary. Plant 2 in Komarom is reportedly operating at a utilization rate in the mid-80% range. With Volkswagen, a major customer, overtaking Tesla to become the top player in the European EV market last year, and with SK On batteries installed in flagship models like the ID.4 and ID.7, the plant’s utilization rate has also risen.

LG Energy Solution is building a local production system in Europe centered on its Wroclaw plant in Poland, while Samsung SDI is expanding supply to European automakers such as BMW through its God plant in Hungary. The three major Korean battery companies are said to be strengthening both supply chain responsiveness and close production competitiveness by leveraging their European local production bases.

A battery industry official stated, "In the past, batteries were viewed from an eco-friendly industry perspective, but now they are increasingly seen as a strategic industry connected to power grids, supply chains, and defense competitiveness. The value of companies with production bases in the U.S. and Europe is likely to grow even further in the future."

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