Korean battery trios strive to improve profitability amid rising peers

[Courtesy of LGES, Samsung SDI, and SK on]

South Korea’s three major battery manufacturers are expected to enhance efforts to improve profitability and respond to the falling lithium prices by boosting factory utilization in the third quarter as they are falling behind their Chinese and Japanese peers.

Contemporary Amperex Technology Co. (CATL), the world’s largest secondary battery company based in China, announced that it posted 189.2 billion yuan ($26.4 billion) in sales and 25.36 billion yuan in operating profit in the first six months of this year. Operating margin stood at 13.4 percent.

“Operating margin for electric vehicle batteries is as high as 21.6 percent and the energy storage system (ESS) sector 21.3 percent,” said a CATL official.

Japan’s leading battery company, Panasonic Holdings Corp., reported an operating margin of 12.3 percent for its battery business in the second quarter.

The energy business unit responsible for batteries recorded sales of 238.4 billion yen ($1.67 billion) and an operating profit of 29.5 billion yen, respectively.

Korea’s three battery companies, in the meantime, lag behind in terms of profitability.

LG Energy Solution Ltd.’s operating margin for the second quarter fell to 5.2 percent due to one-time recall-related costs. Excluding the recall costs, the operating profit margin is 7 percent.

Samsung SDI Co. maintained a relatively high level of 7.7 percent, while SK on Co. continued to record negative profit.

LG Energy Solution and SK on also receive support through the advanced manufacturing production credit (AMPC) under the U.S. Inflation Reduction Act (IRA), but they lag behind in terms of profitability compared to Chinese companies.

CATL is enjoying high operating profit margin thanks to vertical integration of battery materials and intangible support such as cheap electricity rates within China. It has also benefited from the improvement in cost structure due to the decline in lithium carbonate prices earlier this year.

[Courtesy of CATL]

Domestic battery companies in Korea adjust mineral prices and battery selling prices in sync.

For example, when lithium prices go down, the prices of cathode materials received and battery selling prices both go down.

The approximately 20 percent decline in lithium prices in the first and second quarters is estimated to have led to an approximate 8 to 10 percent reduction in battery selling prices for Korean companies.

Korean battery companies are expected to be committed to improving profitability in the second half of this year to offset the negative impact on revenue caused by the decline in lithium prices in the third quarter.

“We will improve our cost structure focusing on logistics and reduce defects to achieve significant improvements in profitability compared to last year’s second half,” said an official from LG Energy Solution. “We are aiming for a single-digit operating profit margin even after excluding the IRA subsidy.”

Samsung SDI expects an increase in product production from the fully operational Hungary plant in the third quarter, which supplies products to BMW AG and others, resulting in improved profitability.

SK on expects its Georgia factory utilization rate and defect rate to improve in the U.S., leading to increased AMPC subsidies and improved profitability.

There are also expectations that direct and indirect subsidies will contribute to profitability improvement. The U.S. nonprofit organization Good Jobs First said that LG Energy Solution and SK on will receive benefits of up to $35.6 billion from AMPC.

They are also expected to receive billions of dollars in benefits through tax breaks, loans, and infrastructure support from the central and local governments.

LG Energy Solution will receive $360 million for the joint factory with Honda Motor Co. and SK on $641 million for the joint factory with Hyundai Motor Co., according to the estimates.