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EV Batteries

SK Innovation to split battery unit in October, seeks IPO

SK Battery poised to go public in 2022, with $15 bn investment plan over the next five years

By Aug 04, 2021 (Gmt+09:00)

SK Innovation's battery business
SK Innovation's battery business

South Korea’s top energy company SK Innovation Co. decided to split off its battery business in October with a plan to list the new affiliate next year, looking to secure funds as it gears up for a fierce race in the global battery industry.

The move came as global automakers and battery makers are going for broke to lead the battery sector, a major beneficiary of the fast-growing electric vehicle (EV) market.

SK Innovation’s board of directors on Aug. 3 decided to split off its battery business and refining units, setting up two new entities, SK Battery Co. and SK E&P Co., to be officially launched Oct. 1. SK Innovation will become their holding company with a 100% stake in each firm to focus on future businesses such as battery materials, according to a company statement on Aug. 4.

SK Innovation revealed a plan to raise a large amount of money through SK Battery’s initial public offering (IPO), although it did not provide a timetable. The industry expects a listing next year when the battery unit is predicted to turn to black.

The company is set to use the IPO’s proceeds to expand its market share in the global battery sector. SK Innovation was the world’s No. 6 player during the first half of this year, behind LG Energy Solution and Samsung SDI Co., which ranked second and fifth, respectively, in the EV battery market, according to SNE Research.
SK Innovation's corporate structure
SK Innovation's corporate structure

NO TIME TO LOSE

The split-off details came about one month after SK Innovation said it was considering spinning off of its battery business and listing the separate entity on Nasdaq.

“We will seek a spin-off when its corporate value can be properly evaluated,” SK Innovation Chief Executive Kim Jun said on July 1.

But the company on Aug. 4 clearly stated they went with a split-off for the purpose of raising money.

“The split was carried out to raise funds for investment in a timely manner when needed,” said Chief Financial Officer (CFO) Kim Yang-seob during the company's quarterly earnings conference call.

SK Innovation plans to invest 17 trillion won ($14.9 billion) in the battery business over the next five years. That would be much more than cash generated from operating profit, even as SK Innovation expected the unit to turn to black in 2022 when a US plant and its second factory in Hungary start mass production.

Its battery business reported record-high quarterly revenue in the April-June period, with 630.2 billion won in sales. Sales in the first half totaled 1.2 trillion won. The order backlog also reached 1,000 Gigawatt hour (GWh), for 15 million EVs. Its value was about 130 trillion won.

SK Innovation decided that now is the best time for the split-off, as uncertainty has been removed through the settlement of a lawsuit with LG Energy Solution and the unit's revenue has continued to grow, although it is still posting a loss.
SK Innovation's battery plant in South Korea
SK Innovation's battery plant in South Korea

GLOBAL COMPETITION

Global automakers and battery companies are speeding up large-scale investment to capture the market. They are pouring billions of dollars individually or jointly to expand capacity and improve price competitiveness.

In Europe alone, 38 battery plants have started construction or are in the process of raising money as of May, according to the industry. Chinese Contemporary Amperex Technology Co. (CATL), the world’s No. 1 battery maker, is building a 60 GWh plant in Erfurt, Germany, with a 1.8 billion euro ($2.1 billion) investment. LG Energy Solution is setting up a 65 GWh factory in Wroclaw, Poland. Among carmakers, Tesla Inc. is constructing a 100 GWh plant in Germany.

Among the 38 battery plants, 17 secured a total $30 billion for their projects, according to the European clean transport campaign group Transport and Environment (T&E), as governments across the continent provided massive financial support to cope with competition from China, Japan and South Korea.

Battery producers and automakers are also actively cooperating – Toyota and Panasonic Corp., Volkswagen and Northvolt, General Motors Co. (GM) and LG Energy Solution, as well as Ford Motor Co. and SK Innovation.

Since battery performance has reached a certain standard, price competitiveness is likely key to capture the market, experts said. The industry aims to halve EV battery prices to around $60/kWh from $137/kWh last year, by expanding production capacity to secure economies of scale.

Global battery demand is expected to soar in the coming decade. The world’s EV battery market is predicted to surge from $30.4 billion in 2020 to $150.7 billion in 2025 and $304.7 billion in 2030, according to SNE Research.

Write to Kyung-Min Kang and Il-Gue Kim at kkm1026@hankyung.com

Jongwoo Cheon edited this article.
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