[Bojo, Battery] Battery 3 Companies Far Behind CATL in R&D Investment, Lagging Even in Sales Ratio

The gap in research and development (R&D) expenses between China’s CATL, the world’s largest battery manufacturer, and the three major domestic battery companies has widened further. Not only in absolute amounts but also in the ratio relative to sales, the domestic companies have fallen behind. They are losing not only in volume competition but also in quality competition to CATL, which was once underestimated as a seller of cheap batteries.

According to CATL’s quarterly report for the third quarter of this year on the 24th, CATL’s sales from the first to the third quarter reached 294.7 billion yuan (approximately 53 trillion won), a 40.1% increase compared to the same period last year. CATL discloses its performance cumulatively for the current year. During the same period, R&D expenses also increased by 40.7%, similar to sales growth. In the report, CATL stated, “With the increase in R&D projects, investments are continuously increasing,” and “We expanded the R&D team compared to last year, and expenses have also increased.” The increase in R&D investment despite the recent global slowdown in electric vehicle demand is interpreted as a determination to secure next-generation battery technology in a market where technology and standard specifications have not yet been established.

The three domestic battery companies also saw sales increase by at least 20% and up to over 100% during the same period, but the ratio of R&D expenses to sales rather decreased. Their research organizations and R&D expenses could not keep pace with the rapid surge in sales.

LG Energy Solution’s performance from the first to the third quarter this year recorded sales of 25.7411 trillion won and operating profit of 1.825 trillion won, increasing by 51% and 87% respectively compared to the previous year. However, during the same period, the ratio of R&D expenses to sales dropped from 4.5% to 2.8%. Although both scale and profitability grew, this growth did not translate into increased R&D investment.

SK On’s cumulative sales for the third quarter this year reached 10.1741 trillion won, a 114.5% increase from the previous year. SK On also saw its R&D expense ratio to sales fall from 3.6% to 2.2%. Considering SK On posted an operating loss of 560 billion won cumulatively for the third quarter this year and is financially constrained, the inability to focus on developing new technologies that will become future assets is a painful issue.

Samsung SDI recorded sales of 17.1435 trillion won and operating profit of 1.3216 trillion won from the first to the third quarter this year. These figures represent increases of 21% and 0.3% respectively compared to the previous year. During this period, the ratio of R&D expenses to sales decreased from 5.5% to 4.9%. However, the R&D expense ratio relative to sales is the only one among the three domestic battery companies that is close to CATL’s level (5.05%).

Domestically, Samsung SDI is the R&D top performer, but in terms of absolute amounts, it is nowhere near CATL’s level. CATL’s cumulative R&D expenses for the third quarter this year amounted to 14.9 billion yuan (approximately 2.67 trillion won). This is 1.5 times more than the combined R&D expenses of the three domestic battery companies (1.7875 trillion won). Samsung SDI spent the most among the domestic battery companies on R&D with 836.4 billion won, LG Energy Solution invested 730.4 billion won, and SK On invested 220.7 billion won.

[Image source=Reuters Yonhap News]

In the global battery industry, competition for securing next-generation batteries is intensifying. Japan’s Panasonic, which had been relatively quiet and observant, recently declared its entry into the “battery war” by selling its automotive parts subsidiary with sales of about 11 trillion won and focusing on the battery business. The war among Korea, China, and Japan has now fully begun.

Experts warn, “If companies reduce R&D expenses, which are indicators of their future, a major crisis will occur not now but in 2 to 3 years.” Batteries are a field where discovering new technologies is difficult. The speed and cycle of technological development are much longer than those of semiconductors. Technology and standard specifications have not yet been established. Professor Park Cheol-wan of Seojeong University said, “Although technological changes in the battery field are not as significant as expected, the cost to overcome the widening technology gap is enormous,” and added, “Even if R&D expenses are reduced and then increased later, it is impossible to quickly catch up with the technological differences.” He further stated, “Reducing R&D investment recorded as expenses to improve superficial operating profit margins is equivalent to giving up the driving force for growth.”