SK Group is undertaking a major overhaul, streamlining operations by eliminating redundant businesses and merging affiliates. SK initiated the group-wide restructuring to deal with its loss-making battery manufacturing affiliate SK On, which has reported operating losses for ten consecutive quarters. Despite investing nearly 20 trillion won ($14.43 billion) into the battery maker since SK On’s inception in 2021, the accumulated losses have adversely impacted the entire group, creating a cycle of difficulty in attracting investment funds, delays in stabilizing yields (gross margins), continued losses, and a market downturn.
The industry attributes SK On’s struggles to its failure to raise funds in a timely manner. Following the spinoff of SK Innovation, SK Group initially planned to secure trillions of won through a public offering or pre-IPO in 2021 and 2022. This plan coincided with heightened market interest in electric vehicle batteries. However, an uncertain investment climate followed by the global economic downturn during the pandemic disrupted these fundraising efforts.
In the first quarter of this year, SK On reported an operating loss of 33.15 billion won ($239.14 million), marking its tenth consecutive quarterly loss. The sluggish turnaround is largely attributed to low yields. As a late entrant in the battery sector, SK On opted to catch up with industry leaders by simultaneously constructing factories in the U.S., China, and Europe. This rapid expansion resulted in initial yields of 70-80% at these overseas facilities, prolonging the company’s profitability slump. In contrast, Samsung and LG, with their long manufacturing histories, achieved higher yields by first establishing core domestic “mother factories” for product design and R&D before expanding overseas.
SK On’s overseas plants have only recently achieved yields of around 90%. “Since the third quarter of last year, we have entered a stabilization phase, with yields at our factories in the U.S., China, and Europe reaching 90%,” stated an SK official.
SK On’s cumulative losses over ten quarters total 2.587 trillion won ($1.86 billion), with an anticipated operating loss of 300 billion won ($216.40 million) in the second quarter of this year. Although the company had projected a quarterly profit last year, the turnaround has been slower than expected.
High interest rates and stubborn inflation have also dampened demand for electric vehicles, leading automakers to delay investments. Ford, for example, has postponed the startup of its Kentucky 2 plant, a joint project with SK On, until 2026 and canceled a joint venture in Turkey.
The company’s debt burden is adversely affecting the entire group as SK On’s return to profitability remains elusive. “SK Group’s business realignment aims to shift its portfolio towards semiconductors and batteries,” explained a financial insider. “While SK Hynix’s performance is recovering, SK On urgently needs a turnaround.”
