The electric vehicle fervor that once gripped global markets seems to be waning, and South Korea’s battery industry is feeling the pinch. (Image courtesy of Yonhap)
SEOUL, May 7 (Korea Bizwire) – The electric vehicle fervor that once gripped global markets seems to be waning, and South Korea’s battery industry is feeling the pinch.
In the aftermath of a sharp decline in demand for electric vehicles since mid-2023, major players in South Korea’s battery sector find themselves navigating compensation negotiations with international automakers, striving to recoup losses incurred by unmet purchase commitments.
As reported on May 5 by industry insiders, the country’s three leading battery manufacturers, reeling from lackluster first-quarter performances, are engaged in talks or have already finalized deals with automaker clients to seek compensation for falling short of agreed-upon purchase volumes.
The setback for Korean battery manufacturers stems from inventory adjustments made by global automakers in the electric vehicle domain. Bolstered by the U.S. Inflation Reduction Act (IRA), these manufacturers had embarked on ambitious expansion initiatives and erected new production facilities to meet soaring demand.
However, the resultant underutilization of existing plants, amidst the backdrop of these expansive investments, has inflicted financial strain on the battery industry.
LG Energy Solution, despite receiving a significant advanced manufacturing production credit (AMPC) of 188.9 billion won for its U.S. operations, effectively reported an operating loss of 31.6 billion won in the first quarter.
The discontinuation of GM’s Bolt EV and a temporary shutdown of LG Energy Solution’s Michigan plant further compounded the blow.
The prevailing global economic headwinds have also dampened electric vehicle demand, exacerbating underutilization rates at European facilities.
LG Energy Solution’s plant in Wroclaw, Poland, for instance, reportedly operated at just 30% capacity in the first quarter due to ongoing inventory adjustments by major clients like Volkswagen, Ford, and Volvo.
Similarly, SK On recorded its ninth consecutive quarter of losses, with an operating loss of 331.5 billion won in the first quarter. The company’s U.S. plants likely experienced minimal utilization rates, mirroring the sales struggles faced by major clients Ford and Volkswagen.
Meanwhile, Samsung SDI, though witnessing a 28.8% year-on-year decline in operating profit in the first quarter, initiated negotiations with clients for compensation due to unmet purchase commitments.
The steep quarter-on-quarter decrease in AMPC payments recognized by Korean battery makers underscores a notable drop in local plant utilization rates and production volumes.
Under the IRA, the U.S. subsidizes battery cell and module production, with AMPC amounts witnessing fluctuations in recent quarters.
In response to the industry downturn, battery manufacturers are doubling down on cost-cutting measures and operational streamlining. SK On, for instance, is revamping production facilities to cater to Hyundai, aiming to boost utilization rates and secure AMPC subsidies.
LG Energy Solution is prioritizing cost reductions in both investment and production, while Samsung SDI is eyeing next-generation product development to weather the current storm.
Kevin Lee (kevinlee@koreabizwire.com)
