SK’s battery unit expects to run loss again in 2023

SK Innovation failed once again to live up to market expectations that its electric vehicle battery manufacturing subsidiary, SK On, would start making a profit from the fourth quarter of last year.

The oil refiner even expects SK On will suffer another annual operating loss this year, although it remains confident that the battery manufacturer will achieve a turnaround in 2024 and reap 4 trillion won ($3.2 billion) worth of benefits from the U.S. Inflation Reduction Act (IRA) until 2025.

During Tuesday’s conference call on its fourth-quarter earnings, SK Innovation said that the annual operating loss from its battery business reached 991.2 billion won last year, as its fourth-quarter operating loss rose to 256.6 billion won from 134.6 billion won in the previous quarter.

The result was in contrast to those of its domestic rivals, LG Energy Solution and Samsung SDI, both of which enjoyed record earnings last year.

“A delayed ramp-up of our factories in the U.S. and Hungary increased the loss,” SK On Chief Financial Officer (CFO) Kim Kyung-hoon said.

SK Innovation said SK On’s profitability will begin to show signs of improvement from the second half of this year, as the growth in its sales is expected to remain rapid. During the fourth quarter of last year, SK On’s quarterly revenue peaked at 2.9 trillion won, up 170 percent from a year earlier.

“We will achieve a surplus in annual earnings before interest, tax, depreciation and amortization (EBITDA) this year,” Kim said.

The battery maker especially seeks to enjoy tax incentives or cash benefits in accordance with the IRA, as its construction of another U.S. factory to produce battery cells and modules is underway.

Based on this optimism, SK Innovation plans to spend 7 trillion won on its battery business this year, among the company’s total capital expenditures worth 10 trillion won.

“Through the investments, we will secure growth engines for our green businesses related to batteries and materials, and prevent any setback in our new businesses including the recycling of waste plastic,” SK Innovation CFO Kim Yang-seob said.

Despite the battery unit’s significant loss, SK Innovation posted record annual sales of 78 trillion won and an unprecedented operating profit of 4 trillion won in 2022.