Coronavirus to have limited impact on battery makers' Chinese plants
LG Chem's first battery plant in Nanjing, China / Courtesy of LG Chem
By Nam Hyun-woo
The spread of COVID-19 will have a limited impact on the activities of Korean rechargeable battery makers' plants in China in contrast to earlier thoughts that the deadly virus would significantly drag down profitability of LG Chem, Samsung SDI and SK Innovation, according to industry officials.
They said they don't expect mid- or long-term damages to their bid for battery businesses in China, but added closely monitoring the developments of the situation to prevent potential setbacks in securing raw materials and supplying batteries to their clients.
According to each company, LG Chem and SK Innovation has resumed the operation of their battery plants in China since Feb. 10. The plants' operation had been forced to slow down since China's New Year holidays following the Chinese central and regional governments' guideline on businesses throughout most of China to shut down by Feb. 9 to prevent further spreading of the virus.
LG Chem and SK Innovation have their respective battery plants in Nanjing and Changzhou, the cities both in Jiangsu Province. Nanjing and Changzhou are each 530 kilometers and 670 kilometers east of Wuhan, the epicenter of the virus.
“There have been concerns over running the plant in Changzhou amid the spread of the virus, but the plant currently has no setback in terms of the plant's operation,” an SK Innovation official said. “It is under a test run before the full resumption, scheduled next month, and we expect no delays or problems in delivering electric vehicle batteries to carmakers.”
SK Innovation completed the plant in December, with a yearly target to produce batteries whose combined output is 7.5 gigawatt hours.
LG Chem is running two battery plants in Nanjing. Annually, the first plant, which began operation in 2016, has a 7.2 gigawatt-hour output and the second plant, which began its commercial operation last month, has a capacity of 6 gigawatt hours.
The two plants have also resumed operation and have yet to report problems in terms of procuring raw materials from Chinese suppliers. An industry source said the number of employees working at the plants are reduced from their normal status, but the impact remains at a limited level.
Samsung SDI, which has battery plants in Tianjin and Xi'an, did not cease their operations despite widespread concerns of the virus; the plants are located farther away than those of their Korean counterparts. The company also said it is yet to experience setbacks or delays in securing raw materials or supplying batteries to its clients.
“Unlike earlier expectations, the impact seems to be remaining at a limited level, with local plants reporting no significant disruption in the scheduled output,” an industry official said. “Though it is too early to say what will happen in the future, our plants have piled up enough inventory and secured raw materials from multiple vendors to avoid risks.”
Though the companies said that the virus fallout is not as serious as forecasted, they agreed a short-term impact on first quarter earnings was looking inevitable.
“Outputs from Chinese plants are going to the local market and it accounts for approximately 15 percent of our (battery) sales,” LG Chem Chief Financial Officer Cha Dong-seok said in a conference call earlier this month. “An adjustment in the operation of Chinese plants seems to be inevitable and impacts are expected on securing materials and distributing batteries.”
Samsung SDI also said in its January conference call that its first quarter business will be affected negatively by seasonal factors and the coronavirus.
The three companies have posted disappointing profitability last year. LG Chem logged 454.3 billion won in operating losses for its battery business and SK Innovation also posted a 309.1 billion won operating loss. Samsung SDI did not reveal separate operation profit in its battery business, but analysts assume it posted a 500 billion won loss.