As Europe's electric train slows down, where will Korean battery companies go?

In the first half of 2024, the global power battery market was highly competitive, and Korean battery companies in particular suffered from the slowdown in demand for electric vehicles in Europe and the United States. The three major Korean power battery companies, LG Energy Solution, SK On, and Samsung SDI, were all impacted to varying degrees.

SK On's situation is the most serious. Not only has it suffered losses for 10 consecutive quarters, but its net debt has soared fivefold to 15.6 trillion won since 2021. Therefore, SK Group has started the restructuring of its energy business and plans to merge its subsidiaries SK Innovation and SK E&S.

This article takes a look at the problems faced by South Korean power battery companies and explores the bottlenecks in the development of power battery companies.

Part 1

The core issues of the three battery companies

According to SNE data, in the first five months of 2024, excluding the Chinese market, the global electric vehicle battery consumption in other regions (Europe, America, Japan and South Korea) was 130.0GWh, an increase of 13.1% compared with the same period last year. The market share of the three Korean companies reached 46.8%, a slight decrease of 1.4 percentage points compared with the same period last year. Samsung SDI's growth rate was as high as 27.2%, SK On's growth rate was 5.0%, and LG Energy Solution also achieved a growth of 5.9%.

● LGES’ continued growth is due to its close partnership with North American and European automakers, including brands such as Ford, GM and Tesla.

● Samsung SDI has achieved significant growth in the European market through cooperation with brands such as BMW and Audi, and has also achieved good growth in North America.

● SK On lost ground to Hyundai Motor but stabilized its growth momentum through its partnerships with Ford and Mercedes.

In comparison, CATL continued to maintain its leading position in the global market, with a growth rate of 11.4%. It is widely used in models of BMW, MG, Mercedes-Benz, Volvo and Tesla. BYD has also rapidly increased its global market share through overseas market expansion.

The biggest problem for Korean battery companies is that the growth of the US market after the implementation of IRA (Inflation Reduction Act) was lower than expected, while the European market saw a slowdown due to reduced subsidies and adjustments to carbon emission regulations.

European and American automakers have placed huge orders for Korean batteries, which has forced three Korean companies to expand their production capacity in Europe and North America to meet the challenge. Therefore, LG Energy Solution's revenue in the second quarter of 2024 fell 30% year-on-year to 6.16 trillion won (about 32.34 billion yuan), and its operating profit fell 58% year-on-year to 195.3 billion won (about 1.03 billion yuan).

Part 2

What exactly went wrong with Korean battery companies?

From the perspective of technical route, Korean battery companies have made misjudgments:

● The core problem of the absence of Korean battery companies in the supply chain is that they underestimated the speed of cost reduction of core materials such as positive electrodes, negative electrodes, diaphragms, and electrolytes in China. The expansion of the supply chain in China and the localization requirements of European and American supply have made the Korean battery industry chain at a loss. It is difficult to compare the control of Chinese battery companies over the upstream supply chain in terms of cheapness. There are also construction cycles and fragility in building a local battery industry chain.

We see that demand from Europe and the United States is a relatively small part of the entire scope, and it also requires localized construction, which is very difficult for Korean battery companies, which already have a small base.

● The result of Korean battery companies' single-minded bet on the ternary route has caused problems. From the perspective of the chemical system, there is no particularly big advantage in safety and cost. With the large-scale application of lithium iron phosphate batteries in China, Tesla, BMW, Mercedes-Benz, Ford and other car companies have begun to use lithium iron phosphate batteries worldwide. Korean battery companies do not have enough time and attention. From the perspective of the price index, China is the lowest in the world.

China has spent a lot of time on lithium iron phosphate, not only from the material level, but also from the system level and vehicle application level.

In fact, Korean batteries cannot achieve a diversified market layout. Their inability to enter China means that the overall market is limited.

Continuous technological innovation and layout of technological routes require a lot of funds. In China, emerging technologies such as sodium-ion batteries, large cylindrical batteries, and (semi-) solid-state batteries are emerging one after another. South Korea also lacks the foundation for industrial integration development. Its customers are foreign and there is no large investment in the upstream. Therefore, it is difficult to integrate the supply of raw materials, production and manufacturing, recycling and other links like China to form a complete industrial chain closed loop. Logically, this is unsolvable.

summary

The expansion of Korean battery companies is actually driven by demand from Europe and the United States. As the development of electric vehicles in these two regions is not smooth, it is difficult to expect Korean battery companies to remain immune.