SK on projected to log operating losses in Q2 amid weak EV demand

[Graphics by Song Ji-yoon]

SK on Co., a pure-play battery maker under South Korea’s SK Group, is expected to remain in the red in the second quarter of 2024 due to the sluggish electric vehicle (EV) market.

According to Samsung Securities Co. on Thursday, SK on is projected to post an operating loss of 351.6 billion won ($252.9 million) for the second quarter of the year.

“The sales recovery at the company’s North American plant is slower than expected,” said Cho Hyun-ryul, a research analyst at Samsung Securities.

SK on posted an operating loss of 331.5 billion won in the first quarter of 2024, with interest expenses alone amounting to 178 billion won.

Under these circumstances, the company’s facility investment (CAPEX) for the year is expected to reach approximately 7.5 trillion won.

BlueOval SK LLC, a joint venture between SK on and Ford Motor Co., has also recently decided on a capital increase of 810.1 billion won for battery plant construction.

The joint venture has secured a conditional commitment from the U.S. Department of Energy‘s Advanced Technology Vehicles Manufacturing (ATVM) Loan program and is pursuing a final financing agreement.

Battery companies, including SK on, are experiencing sluggish performance as EVs enter a chasm phase due to high interest rates and sluggish economy.

SK On-Ford JV BlueOval SK’s plant in Glendale, Kentucky at BlueOval SK Battery Park. [Courtesy of SK on]

SK on is hoping to recover in the second half of the year.

“We expect improved market conditions, including an increase in the Advanced Manufacturing Production Credit (AMPC), with an increase in sales in the United States and the expansion of new vehicle lineups by our customers,” said a company official.

SK on’s initial public offering (IPO), in the meantime, remains a challenge. The investment banking (IB) sector is raising doubts about the company’s IPO process because its corporate value has not reached the level desired by financial investors (FIs).

The contract between SK on and the FIs reportedly includes a Qualified IPO (QIPO) clause, which requires an IPO by 2026 and guarantees a certain rate of return for the FIs.

SK on cannot proceed with its IPO upon FIs’ objection.

SK on attracted more than 1 trillion won in investment from a consortium led by Korea Investment Private Equity and EastBridge Partners at the end of 2022. It also raised another 1 trillion won from a consortium led by MBK Partners in May 2023.

“There are questions about the future growth of SK on, the third-largest battery maker in the country, which makes further investment or an IPO challenging,” an IB industry insider noted.

SK Group has recently introduced intermittent personnel changes to instill a sense of urgency in the organization.

It replaced SK ecoplant Co. Chief Executive Officer Park Kyung-il with Kim Hyung-geun, chief financial officer of SK E&S Co., last month. It also dismissed SK on Chief Commercial Officer (CCO) Sung Min-suk on Wednesday.

Park Sung-ha, CEO of SK square Co., an investment company of SK Group, was also reportedly replaced.

“There is a possibility that SK Group will implement additional personnel changes and organizational restructuring after the management strategy meeting next week,” said a senior official in the business community.