Interpretation of the first half performance of three Korean battery companies-Soft Pack Road

The three Korean battery companies are currently the biggest competitors of Chinese power battery companies in their global expansion. In terms of installed capacity:

●In the first half of 2022, the installed capacity of power batteries among the three Korean battery companies was: LG Energy ranked second with 29.2GWh, a year-on-year increase of 6.9%; SK-On was 13.2GWh, a 2.1-fold increase; and Samsung SDI was 10.0GWh, an increase of 50.6%.

●In terms of sales performance, LG, SDI and SK On’s revenues were 48.95 billion, 45.66 billion and 13.25 billion, respectively, and their profits were 2.37 billion, 3.91 billion and -3.12 billion, respectively.

We can see that LG Energy's growth rate is very low, and SK-On's current capital expenditure and overall ambition are very aggressive. I think this article will mainly focus on the soft package of SK-ON and LG. Then the next article will discuss the cylindrical square shell of LG and SDI.

▲Figure 1. Performance of three Korean battery companies 

The performance of battery companies depends mainly on their customers:

LG Energy

●SK On

●SDI 

▲Figure 2. Korean battery enterprise customers

Part 1. SK On’s soft packaging and development

SK On's growth rate is still very fast. By the end of 2022, the new capacity of the second plant in Hungary and the expansion of the Yancheng plant in China will bring the battery production capacity to 77GWh, which is twice the capacity at the end of 2021. By 2025, SK-On plans to have a global production capacity of more than 220GWh, including 77GWh in China, 5GWh in South Korea, 48GWh in Europe (92.6GWh after joint ventures), and 94GWh in the United States (eventually to expand to 150GWh).

▲Figure 3. SK On customers

Although the loss is huge, SK-ON's operational capacity has improved since the second half of the year, and commodity prices have stabilized. By re-negotiating pricing with OEMs, profitability will improve in the second half of the year, and it is expected to achieve the goal of operating profit break-even in 4Q22. For the full year of 2022, revenue is expected to increase by 2 times to 7 trillion won (36.4 billion yuan). Judging from the cooperation between Ford and CATL on LFP batteries, SK-ON will complete the development of LFP batteries by the end of 2022, and is also discussing and negotiating with customers on the supply of LFP batteries.

Note: The use of LFP technology is currently a global trend.

Part 2. LGES soft package and development 

After the expansion and recall in the past few years, LGES has adjusted its development pace. Compared with its competitors, LG's current growth rate is basically the same as Panasonic. Currently, LGES's customers mainly include GM, STEL LAN TIS, Volkswagen, Hyundai, Kia, Renault, Ford, Volvo, etc. As of the end of June 22, the order backlog was 310 trillion won.

▲Table 1. Installation volume of global power battery companies

Capital expenditure in the first half of 2022 is about 2.7 trillion won, mainly used to establish a joint venture with General Motors in the United States and expand the cylindrical battery production line; from a comprehensive perspective in 2022, capital expenditure is expected to be about 7 trillion won. LGES is currently locking in customers first and building factories around the world. In North America, there are four factories jointly built with General Motors, Stellantis, etc., a soft-pack factory centered in Poland in Europe (new cylindrical production capacity also needs to be considered, which is mainly due to the needs of FCA and Tesla), and production bases in Ochang, South Korea and China in Asia, as well as a joint venture factory in Indonesia; it is expected that by the end of 2025, LGES will have a battery production capacity of approximately 540GWh.

▲Figure 4. LGES's global production capacity layout

From the second half of the year, LGES's major customers will launch new models, and the joint venture with GM will start production from 2Q22, which will drive the growth of power batteries. LGES negotiated with customers on metal cost transfer in the first half of the year. The impact of cost transfer will begin to be reflected in the third quarter of 2022. Net operating profit and revenue after tax in the second half of 2022 will increase by 34% compared with the first half of the year and 48% compared with the first half of 2021. The annual revenue guidance for the full year of 2022 was raised from 19.2 trillion won to 22 trillion won.

LGES will continue to adhere to the soft-pack and cylindrical routes, maintain the soft-pack battery solution with NCMA positive electrode and silicon negative electrode, strive to provide a stable supply of 4680 large cylindrical batteries, and develop the next generation of solid-state battery technology. It has also begun to lay out in the field of lithium iron phosphate and has launched products in energy storage.

Figure 5. LGES's next-generation product development

summary:

Let me stop here for now. Even with the huge increase in battery prices, the domestic market is still the most powerful; China has a relatively high acceptance of new energy vehicles.