FAR EAST: SOUTH KOREA REPORT
The consolidated financial results for the April-June period of the three major Korean battery companies show significant sales growth. LG Energy Solution’s sales grew 73% y/y and operating profit was 2.4x y/y. SK On’s sales grew 2.9x y/y due to the expansion of EV production. Samsung SDI’s sales grew 23% y/y.
LG Energy, the world’s second largest automotive battery maker, posted a 73% y/y increase in sales to KRW 8.774 trillion (approximately $6.6 billion) and a 2.4x y/y increase in operating profit to KRW 461 billion (approximately $340 million), while its joint production with GM of the U.S., which will begin operations in 2022, also contributed to the continued growth in sales and profit.
LG Energy announced that its order backlog as of the end of June was 44 trillion KRW ($332 billion), an increase of 130 trillion KRW ($98 billion) in one year. The company has been accumulating orders through joint venture agreements with Honda and Hyundai Motor, and is building several new plants, mainly in North America, to meet rising demand.
SK On posted a significant 2.9-fold increase in sales to 3.6961 trillion KRW ($270 million). SK, a latecomer to the market, continues to make heavy upfront investments and will remain in the red for the time being.
Samsung SDI, whose main products are automotive and smartphone batteries, posted a 23% increase in sales to 5,840.6 billion KRW ($440 million). Sales have been growing steadily due to strong car sales, especially in Europe.
Source: The Nikkei
PSR Analysis: The current manufacturing industry in South Korea is driven by semiconductors and batteries. While semiconductor production continues to decline and the profitability of semiconductors is slowing, batteries seem to be doing well. Korean manufacturers also continue to invest in setting up production facilities in North America.
With increasing adoption by automakers in North America and Europe, Korean battery makers will continue to make great strides for at least the next five years or more, according to current estimates.
One concern, as I have often pointed out, is that other battery manufacturers are also investing aggressively to improve their production capacity, so that when demand saturates, price competition may ensue, and excess supply capacity may become a constraint.
The procurement of raw materials, especially rare metals, is also facing international competition, which may make procurement more difficult in the future. The key will be how Korean companies deal with these challenges. PSR
Akihiro Komuro, Research Analyst is Far East and Southeast Asia, for Power Systems Research
