Tight cash flow poses challenges to Korean battery makers’ expansion plans

The three corporations are on-step to cancel the joint project to build a battery plant in Turkey [Source : SK on]

The worldwide cash flow crunch is now challenging the Korean battery scene as the country’s three big battery makers have already slowed their expansions due to the global economic downturn and slow cash flow.

The economic downturn is affecting SK on Co. as it may withdraw its pact with Ford Motor Co., and Koc Holding A.S. to jointly build a battery plant in Europe.

The three corporations are on-step to cancel the joint project to build a battery plant in Turkey, according to industry insiders on Monday. Last March, SK on, Ford, and Koc signed a trilateral memorandum of understanding (MOU) covering a 3 trillion won ($2.4 billion) project to produce electric vehicle batteries from 2025 near Ankara, Turkey.

However, frozen cash flows worldwide have now challenged the joint venture. Some spectators say SK on may want to focus on increasing output at its Hungary plant, instead of expansion. One SK on source said that there had been not much progress on the joint venture project since the MOU signing, leaving discussions up in the air. They have not made a final decision, though, according to the company source.

SK on is seeking financing. The company was hoping to gain around four trillion won through a pre-initial public offering early last year. However, it ended up garnering only 800 billion won from the Korea Investment Private Equity, with a two trillion won investment from its parent, SK Innovation Co. The private equity firm is planning another 500 billion won-investment for SK on later this year.

BlueOval SK, a joint venture between SK on and Ford for EV batteries, plans to apply for a loan from the U.S. government to seek additional funding channels. The joint venture is seeking three to five trillion won under the U.S. government’s Advanced Technology Vehicle Manufacturing (ATVM) program.

“New industries like batteries and EVs inevitably need large investment, but the financing among domestic manufacturers is not good at the moment,” an industry source said. “Even a proposal on supplies or a JV should be reconsidered due to financing issues.”

[Photo by MK DB]

LG Energy Solution Ltd. is also taking cautious steps in terms of investments. Last March, the market leader among Korean battery makers announced a new cylindrical battery plant with a total capacity of 11 gigawatt hours. In June, however, the battery maker took it back to review its initial plans as the new plant will need much more money than initially expected due to inflation and exchange rates. The company has not reached a final conclusion yet, extending its previous plan to make an investment decision by the end of the year.

Samsung SDI Co. has been pretty quiet, too, since its announcement last year that it would establish a joint venture with Stellantis N.V. Equity market insiders project that automotive manufacturers would like to be partnered with Samsung SDI, as the company is estimated to have the best financial condition among the big three battery makers, but Samsung SDI remains conservative concerning any new investments.

While the big three Korean battery makers are tapping the U.S., following the enactment of the Inflation Reduction Act, Contemporary Amperex Technology Co is moving into Europe. The global battery leader’s plant in Erfurt, Germany, started operations at the end of last year, the Chinese company’s first factory outside China. CATL batteries from the Erfurt plant will be provided to Mercedes-Benz and BMW, which could be a threat to other BMW battery suppliers, including Samsung SDI.

CATL has also revealed another overseas investment plan. The company is investing 7.3 billion euros into a 100 GWh battery plant in Debrecen, Hungary by 2027. Batteries from the Debrecen plant will be supplied to Mercedes-Benz and BMW, and also to Volkswagen and Stellantis. The Chinese battery maker is considering a third plant in Europe.