EV-phobia: A potential nightmare for Korean battery makers

Industry

EV-phobia: A potential nightmare for Korean battery makers

Published: 16 Aug. 2024, 17:37 Updated: 16 Aug. 2024, 17:38

SARAH CHEA
chea.sarah@joongang.co.kr

Ultium Cells employees work at its battery manufacturing plant in Lordstown, Ohio. Ultium Cells is a 50:50 joint battery venture between LG Energy Solution and General Motors. [LG ENERGY SOLUTION]

The rapidly-spreading EV-phobia triggered by a recent EV explosion could be a nightmare for Korean battery makers who are already suffering from sharply dropped battery sales in the wake of cooling consumer demand in the global markets.

The capacity utilization rate of LG Energy Solution, the country's largest battery maker, stayed at 59.4 percent in the first half of this year, down from the previous year's 74.8 percent, according to its regulatory filing.

The capacity utilization rate measures the percentage of a company's operational plants. The low rate means it made fewer volume of batteries, which directly relates to its sales.

"The utilization rate of LG Energy's Poland plant, its largest manufacturing facility, plunged to 50 percent from 80 percent during the period," said battery analyst Chun Woo-je from KB Securities. "The demand for EVs and batteries is likely to remain weak for a while along with consumers' growing preference for hybrid cars over EVs."

LG Energy Solution's sales in European markets more than halved to 3.4 trillion won ($2.5 billion) in the first half compared to 7.4 trillion won last year.

Its annual utilization rate, which reached 73.6 percent in 2022, declined to 69.3 percent last year.

LG Energy Solution's battery manufacturing plant in Poland. [LG ENERGY SOLUTION]

The situation is even worse for SK On, a battery-making subsidiary of SK Innovation that has failed to turn a profit for 11 consecutive quarters.

The utilization rate for SK On plummeted to 53 percent in the first half compared to 97.6 percent last year.

Samsung SDI doesn’t disclose the utilization rate of its medium- and large-sized batteries, the products used for EVs.

The low utilization rates led to weak earning reports, with LG Energy Solution's operating profit more than halved to 195.3 billion won in the second half, down 57.6 percent on year.

When excluding tax credits from the U.S. government's Inflation Reduction Act (IRA), the company logged an operating loss of 252.5 billion won.

The BlueOval SK Battery Park Kentucky in Glendale, Kentucky. SK On and Ford Motor are building two EV plants in the state and operation of the second plant has been delayed amid weakening battery sales. [SK ON]

SK On reported 460.1 billion won in operating loss in the second quarter, failing to turn a profit for the 11th consecutive quarter since its establishment in Oct. 2021.

The battery firms are either pausing the construction of new plants or modifying their production lines to control expenses.

“LG Energy Solution is considering shifting its Poland and Michigan plants, the facilities that are solely run by us, into ESS [energy storage system] facilities to recover the utilization rate,” an LG Energy Solution executive told the Korea JoongAng Daily.

SK On also said it is making plans to “efficiently operate plants based on the different situations of regions and facilities” during a second-quarter conference call earlier in the month.

Ultium Cells, a joint battery venture between LG Energy Solution and General Motors, said it is slowing the construction of its third plant in Michigan. LG Energy in June suspended the construction of its battery production line for energy storage systems in Arizona.

SK On also pushed back the operation of its second Kentucky plant — which is a joint venture with Ford Motor — which was scheduled to begin in 2026.

BY SARAH CHEA, CHOI SUN-EUL [chea.sarah@joongang.co.kr[