SK On narrows operating loss in Q3

Battery maker expects to benefit from US Inflation Reduction Act

By Park Jae-hyuk

SK On, the electric vehicle (EV) battery manufacturing subsidiary of SK Innovation, showed that it expects to benefit from the U.S.' Inflation Reduction Act (IRA), amid lingering uncertainties about when the company will start making a profit.

During Thursday's conference call on SK Innovation's third-quarter earnings, SK On Vice President Ryu Jin-suk, who is in charge of the company's business strategies, said to investors and analysts that the new U.S. law should bring substantial benefits to non-Chinese battery manufacturers.

The act, which is apparently intended to restrain the growth of China's EV battery industry, provides a tax credit to U.S. consumers who purchase EVs with final assembly in North America. All vehicle battery components must be manufactured or assembled in North America, and their critical minerals should be sourced from the U.S. or countries that have free trade agreements with the U.S.

“The IRA basically restricts Chinese companies from entering the U.S. market. We also expect demand growth in the U.S. and profit improvement,” Ryu said. “We already run a U.S. factory and have sought to increase its capacity. We have also taken an advantageous position, as we have tried to establish a supply chain there, even before the IRA was passed.”

The battery maker, however, failed once again in turning a profit during the third quarter.

Unlike its Korean rivals ― LG Energy Solution and Samsung SDI ― which posted solid earnings, SK On suffered a 134.6-billion-won ($95 million) operating loss, although it posted 9.4 billion won in earnings before interest, tax, depreciation and amortization (EBITDA) and its operating loss was narrowed from 326.6 billion won a quarter ago.

In addition, the company seems skeptical about making profits during the fourth quarter. SK Innovation had initially aimed for its battery business to break even by the end of this year.

“Europe's rising energy costs and strong U.S. dollar weigh on our attempt to improve profitability during the fourth quarter,” SK On Executive Vice President Jin Seon-mi said. “Through cost cutting, we will improve our operating profit.”

The company added that it has hardly enjoyed any benefits from the strong U.S. dollar, because Hyundai Motor and Kia, both of which use the Korean won for transactions with SK On, are still the two most important clients of the battery firm.

“Thanks to the continuous growth of the proportions of other clients, such as Ford and Volkswagen, we expect a limited impact from the exchange rate in the future,” an SK Innovation official said.

SK On also answered questions about its fundraising plan, given that concerns have continued among investors about a delay in its pre-initial public offering.

“The fundraising for our global expansion has gone smoothly, regardless of the recent financial market environment,” said Kim Yang-seob, SK Innovation Chief Financial Officer.

Regarding SK On's efforts to attract long-term investments from financial investors, however, the company admitted that investments have been delayed.

Meanwhile, in the aftermath of falling oil prices and refining margins, SK Innovation's third-quarter operating profit declined by over 1 trillion won quarter-on-quarter to 704 billion won, up 5.28 percent year-on-year. The result fell short of the market consensus.