SK On Captures All Major Korean, US, and Japanese Automakers... Is Profit Turnaround Within Reach?

SK On, Rumors of Nissan Supply Stir...

On the 6th of this month, after the opening ceremony of the 2024 INTER BATTERY held at COEX in Gangnam-gu, Seoul, Kang Kyung-sung, the 1st Vice Minister of the Ministry of Trade, Industry and Energy, Kim Dong-myung, CEO of LG Energy Solution and Chairman of the Korea Battery Industry Association, Lee Seok-hee, President of SK On, Choi Yoon-ho, CEO of Samsung SDI, and other battery company representatives visited the SK On booth to listen to explanations from the officials.
[Photo by Yonhap News]

SK On is getting closer to supplying batteries to the Japanese automaker Nissan Motor. If the supply deal is finalized, SK On will have partnered with major automakers in key countries including Korea, the United States, Japan, and Europe.

According to the battery industry and foreign media on the 18th, Nissan is discussing equipping its electric vehicles produced in the U.S. with SK On batteries. This plan is reportedly included in Nissan's upcoming 'three-year mid-term management plan.' Currently, Nissan uses batteries from the Chinese company 'Envision AESC' in its electric vehicles produced in the U.S. However, electric vehicles using Chinese-made batteries are not eligible for tax incentives in the U.S. To receive tax benefits under the Inflation Reduction Act (IRA), Nissan is considering switching battery suppliers and is leaning toward selecting SK On as its battery supplier. Nissan also plans to strengthen partnerships with other companies to enhance price competitiveness in the electric vehicle market, where Chinese influence is growing, and is reviewing joint parts procurement with Honda.

If SK On signs a contract with Nissan, it will be the first time the company partners with a Japanese automaker. For Nissan, diversifying battery suppliers is essential to expanding its electric vehicle market. Nissan has set a goal to increase the share of electric vehicle sales in North America to 40% by 2030. SK On has supplied batteries to major automakers in key markets, including Hyundai in Korea, Ford in the U.S., and Volkswagen and Mercedes-Benz in Europe. Nissan is one of the top three Japanese automakers along with Toyota and Honda. From the perspective of battery companies, having a diverse range of suppliers and countries reduces the risk of performance fluctuations caused by the ups and downs of specific demand sectors.

SK On has stated that it cannot confirm details related to its clients, but cooperation with Nissan appears to be maturing. Nissan executives visited SK On’s factory in Seosan, Chungnam, at the end of last month, and based on foreign media reports, the likelihood of supply is increasing. SK On’s order backlog at the end of last year was about 400 trillion won, an increase of 110 trillion won compared to the end of 2022, and this figure is expected to grow further if supply with Nissan materializes.

Battery sales and factory utilization rates in the North American market are also expected to rise. SK On currently has a battery production capacity of 21.5 GWh through a wholly owned factory in Georgia. Since this is not a joint venture but an SK On sole-owned plant, supply can be flexibly adjusted, and if a contract is signed, supply could begin quickly.

SK On’s performance, which was initially expected to struggle to turn a profit this year due to weak downstream demand, is also expected to be positively impacted. SK On CEO Lee Seok-hee recently told reporters at the public-private battery alliance, regarding his determination as the 'relief pitcher' this year, "We are working hard to turn a profit. We are trying to achieve it within this year." Since his appointment as SK On CEO at the end of last year, Lee has voluntarily cut his salary by 20% until profitability is achieved and has pushed for organizational reform, including instructing executives to start work at 7 a.m.