SK On Expands Battery Portfolio Amid Slowing EV Demand: A Strategic Analysis for Investors
By Heekyong Yang
SEOUL (Multibagger) - South Korean EV battery manufacturer, SK On, is currently in discussions with various automakers to supply prismatic batteries. This move marks a significant shift from their existing focus on pouch-type batteries. The strategic pivot comes amidst a backdrop of decelerating global electric vehicle (EV) demand.
Diversification as a Strategic Move
SK On, a subsidiary of energy conglomerate SK Innovation, supplies batteries to industry giants such as Ford Motor, Hyundai Motor, and Volkswagen. Ko Chang-Kook, SK On’s chief spokesperson, revealed that the company is in talks with multiple automakers regarding prismatic battery supply agreements.
"We are having talks with automakers who will take our prismatic batteries... we will now have the opportunity to diversify our product portfolios sooner than later," Ko told Multibagger.
Ko did not disclose the names of the automakers involved but confirmed that SK On has completed the development of prismatic battery technology and is poised to commence production once the deals are finalized.
Understanding Battery Types
Currently, there are three primary types of lithium-ion batteries used in EVs: prismatic, cylindrical, and pouch-type. Each type has its own set of advantages and disadvantages:
- Prismatic and Cylindrical Batteries: Encased in hard materials, these batteries offer robust protection.
- Pouch-type Batteries: Encased in sealed flexible foils, these batteries are protected by thin metal bags.
SK On has traditionally produced only pouch-type batteries but has now secured the technology needed for prismatic batteries. The company is also exploring the development of cylindrical batteries, which are widely used by Tesla.
Financial Outlook and Market Position
When questioned about potential cuts to capital expenditure, Ko stated that SK On has no plans to reduce its capital spending or research and development budget. As a point of reference, SK On's parent company, SK Innovation, allocated a capital spending budget of approximately 9 trillion won ($6.55 billion) for the current year, with over 80% earmarked for SK On.
In contrast, LG Energy Solution (LGES), a competitor, announced plans to minimize capital expenditure due to the slowing EV demand. Last month, LGES paused part of the construction of its multi-billion dollar battery factory in Arizona.
Future Prospects and Strategic Measures
Earlier this year, SK On indicated it was on track to break even by the second half of the year. More recently, the company announced across-the-board expense cuts, including freezing executive salaries until profitability is achieved.
Local media has speculated that SK Innovation might pursue a merger with its gas affiliate, SK E&S, to support SK On. In a recent regulatory filing, SK Innovation disclosed that its board would meet next Wednesday to discuss various strategic measures, including potential mergers.
($1 = 1,374.4200 won)
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Analysis: What This Means for Investors and Consumers
For Investors:
- Diversification Strategy: SK On’s move to expand its battery offerings to include prismatic types could open new revenue streams and mitigate risks associated with relying solely on pouch-type batteries.
- Financial Stability: Despite not yet turning a profit, SK On is not reducing its capital or R&D expenditures, signaling a commitment to long-term growth and innovation.
- Potential Mergers: A merger with SK E&S could provide SK On with the financial stability needed to become profitable, making it a more attractive investment.
For Consumers:
- Product Availability: As SK On diversifies its battery types, consumers can expect a broader range of EV options equipped with different battery technologies, potentially improving performance and efficiency.
- Industry Impact: The slowing global demand for EVs might lead to better deals and incentives for consumers as companies compete to capture market share.
- Technological Advancements: Continued investment in R&D by companies like SK On ensures that consumers will benefit from advancements in battery technology, leading to longer-lasting and more efficient EV batteries.
In summary, SK On's strategic moves to diversify its battery portfolio and maintain robust financial commitments indicate a forward-looking approach that could benefit both investors and consumers alike.