South Korea’s major battery manufacturers are grappling with mounting financial pressure as the won continues to lose value against the U.S. dollar.
LG Energy Solution, SK On, and Samsung SDI, which had borrowed heavily in dollars to fund construction of electric vehicle battery plants in the United States, are now facing significantly higher debt burdens.
When the won loses value against the dollar, it means South Korea’s currency has weakened. This makes imports more expensive, particularly for goods priced in dollars, such as raw materials or oil, leading to higher costs for businesses and consumers. For companies with dollar-denominated debt, like battery makers, repayment costs rise, squeezing profit margins.
On Dec. 12, the won-dollar exchange rate closed at 1,431.9 won per dollar, down just 0.3 won from the previous day. While speculation over a possible U.S. interest rate cut has slightly eased the rate, the exchange rate has remained above 1,400 won for nine consecutive trading days. Some brokerage firms project the rate could climb further, with upper estimates reaching the mid-1,460s won per dollar.
The exchange rate has surged from the low 1,300s in early October, largely following former U.S. President Donald Trump’s victory in the presidential election. Domestically, the political landscape has been in turmoil, with rapid changes such as martial law declarations and impeachment proceedings, further accelerating the won’s decline.
Due to these reasons, S. Korea’s three leading battery makers are grappling with substantial debt in U.S. dollars.
According to S. Korea’s Financial Supervisory Service, LG Energy Solution reported about $4.7 billion in dollar debt as of the end of the third quarter. With the exchange rate rising by over 100 won since September, the company’s debt burden has grown considerably. LG Energy Solution estimated that a 10% increase in the exchange rate would result in a $1.66 million annual loss.
SK On’s dollar debt stood at $2.4 billion at the end of the third quarter, a significant increase from $1.79 billion at the end of last year. In its quarterly report, SK On projected a $12.3 million loss for every 5% rise in the exchange rate. While Samsung SDI did not disclose its dollar debt in its third-quarter filing, its 2022 annual report listed $3.09 billion in liabilities.
