China Energy Storage Network News: SK On, the world's fourth-largest battery manufacturer, enters crisis mode.

On July 7, SK On said that the company was facing a crisis as its downstream customers struggled to cope with disappointing electric vehicle sales in Europe and the United States. SK On has suffered losses for ten consecutive quarters since it was spun off from SK Group in 2021.

In the first quarter of this year, SK On lost 331.5 billion won (about 1.7 billion yuan), nearly 17 times the loss of 18.6 billion won (about 0.97 billion yuan) in the fourth quarter of last year. Due to falling sales and prices, SK On's sales in the first quarter of this year were 1.68 trillion won (about 8.8 billion yuan), a year-on-year decrease of 49%.

As the loss widened, SK On CEO Lee Seok-hee released a series of cost-saving and operational improvement measures, describing them as emergency management measures.

"We have reached a dead end and must work together," Lee Seok-hee said in a letter to employees. He took over as CEO of SK On in December last year.

In a meeting with SK On's top executives in February this year, Lee Seok-hee said that the company was facing a crisis of slowing market growth due to high interest rates in the United States and the global economic downturn, and all managers, including the CEO, should go all out to overcome the crisis.

Lee Seok-hee announced at the time that he would give up 20% of his annual salary until SK On achieved profitability. This measure has been further increased recently.

SK On announced last week that it would freeze all executive salaries until the company turns a profit to ease its financial difficulties. In addition, SK On executives must fly economy class when traveling internationally and are required to work before 7 a.m.

The latest global power battery statistics released this month by South Korean research institute SNE Research show that in the first five months of this year, SK On ranked fourth in the world with a market share of 4.9%, ranking behind LG New Energy. CATL (300750.SZ) and BYD (002594.SZ) dominate the global battery industry with a combined market share of 53.2%.

SK On has made a series of large investments in the United States and Europe in recent years, betting on the explosive growth of demand for electric vehicles.

But SK On announced at the end of last year that it would lay off more than 100 employees at its factory in Georgia, USA, and postpone the start of production of its second joint venture factory with Ford, which is located in Kentucky, USA.

UBS battery analyst Tim Bush said that US automakers have failed to produce enough electric vehicles that are attractive to mass-market consumers to fulfill their optimistic sales expectations. Last year, GM predicted that the company would sell 1 million electric vehicles by 2025, but sold less than 22,000 in the second quarter of this year.

Competition in the lithium battery industry has intensified, and the elimination of enterprises is expected to happen soon. At the Global Partner Summit held by Honeycomb Energy last week, Yang Hongxin, chairman of the Chinese lithium battery company, predicted that there may be no more than 40 power battery companies by the end of this year, and the next two years will still be a stage of accelerated elimination. In response to various changes in the lithium battery industry, Honeycomb Energy began to implement a number of measures such as reducing staff and controlling costs and slimming down its business at the beginning of this year.

After releasing its annual huge loss last week, European battery company Northvolt also announced that it would adjust its capacity expansion plan, which may delay the construction of new factories in Germany, Canada and Sweden. In fiscal 2023, Northvolt's losses increased sharply from US$285 million (approximately RMB 2.07 billion) in the previous year to US$1.2 billion (approximately RMB 8.7 billion).

SK On, which is in crisis, is still expected to receive support from SK Group.

SK Group is said to be seeking to merge SK Innovation and SK E&S to support SK On, a battery business that is in a loss. SK Innovation is the parent company of SK On, while SK E&S is a subsidiary of SK Group that produces liquefied natural gas and has strong profitability.

Bush analyzed that as long as SK Group continues to regard SK On as a valuable asset and provides it with the support it needs to cope with the current crisis, SK On's long-term prospects are likely to be guaranteed.

[Editor: Gao Qian]