SK Inno, Battery Sales Recharge 1 Trillion Won in First Half... IPO Possible Next Year

Rapid Growth in Battery Business... Order Backlog Exceeds 1 Terawatt + α
Mid-30 Trillion KRW Sales Expected This Year... Impact of Increased New Sales Volume
Break-Even Point to Be Achieved Next Year... Operating Profit Margin in High Single Digits by 2025

[Asia Economy Reporter Hwang Yoon-joo] SK Innovation, once a latecomer in the battery industry, is believed to have made the bold decision to spin off its battery business due to a solid order backlog exceeding 1 terawatt-hour (TWh). When converted into sales, this amounts to approximately 130 trillion KRW. SK Innovation aims to position its battery business as a core pillar of future growth, launching it as an independent company this October, and plans to enhance corporate value by successfully going public (IPO) as early as next year.

During the Q2 earnings conference call held on the 4th, SK Innovation stated, "Battery business sales this year are expected to reach the mid-3 trillion KRW range," adding, "We anticipate achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) this year and surpassing the breakeven point next year."

In fact, the growth pace of SK Innovation's battery business is remarkable. The Q2 sales of the battery division recorded 630.2 billion KRW, an approximately 86% increase compared to the same period last year. Since Q1 2020, sales have steadily increased from 288.8 billion KRW, 338.2 billion KRW (Q2), 486 billion KRW (Q3), 497.2 billion KRW (Q4), to 526.3 billion KRW in Q1 this year. The cumulative sales for the first half of this year surpassed 1 trillion KRW for the first time in history.

The rapid growth of SK Innovation's battery business is attributed to aggressive preemptive investments securing new volumes. On July 1st, during 'Story Day,' SK Innovation revealed that the order backlog for its battery business stands at '1 terawatt + α.' Recently, by deciding to establish a joint venture with Ford in the United States, the order volume reportedly reached 1000 GWh.

Currently, SK Innovation's battery production capacity is around 40 GWh annually across South Korea, the United States, China, and Hungary, but this figure is frequently changing due to aggressive expansions. SK Innovation plans to increase its annual battery production capacity to 85 GWh in 2023, 200 GWh in 2025, and over 500 GWh by 2030. According to SK Innovation's plan, the battery business is expected to surpass the breakeven point next year and maintain an operating profit margin in the high single digits starting from 2025.

After the spin-off, SK Innovation also plans to expand into new battery application markets such as energy storage systems (ESS), flying cars, and robots, and accelerate the execution of new growth engines including the BaaS (Battery as a Service) platform business, which extends beyond battery products to services.

With the new company launching on October 1st, the IPO schedule is expected to accelerate beyond initial market expectations. SK Innovation has stated that it will achieve operating profit in the battery business in 2022 and rapidly improve operating profit margins from 2023, leading to speculation that the IPO could take place as early as the beginning of next year. The company said, "The purpose of the battery business spin-off decision is to timely implement financing plans when the time comes to raise investment funds," adding, "Specific methods, timing, and scale of financing have not been decided."

SK Innovation also announced its Q2 earnings on the same day. Operating profit for Q2 turned positive at 506.5 billion KRW compared to the same period last year, and sales increased by 55.9% to 11.1196 trillion KRW. For the first half of the year, operating profit turned positive at 1.009 trillion KRW. This marks the first time in three years since 2018 that the refining division's operating profit exceeded 1 trillion KRW in the first half. The company explained that this was due to record-high performance in the lubricants business and reduced operating losses in the battery business. First-half sales totaled 20.3594 trillion KRW, up 11.9% from the same period last year. The oil development business recorded an operating profit of 3.6 billion KRW, down 7.7 billion KRW from the previous quarter due to decreased sales volume despite rising oil and gas prices.

Kim Jun, SK Innovation's CEO, said, "The results of SK Innovation's eco-friendly deep change, which began in 2017, are gradually becoming visible," adding, "We will continue strong execution to complete our financial story by growing green businesses such as batteries and materials as new growth pillars while transforming existing businesses into eco-friendly operations."