Leading South Korea-based battery manufacturers LG Energy Solution, Samsung SDI, and SK On reported unsatisfactory financial performance in the first quarter of 2024 due to slow EV market growth, customers adjusting their inventory levels, and falling metal prices.
According to South Korea-based Edaily and The Korea Economic Daily, LGES saw its operating profit decrease by 75.2% year-on-year to KRW157.3 billion (US$114 million) in the first quarter of 2024. When deducting KRW188.9 billion of advanced manufacturing production credit (AMPC) offered by the US Inflation Reduction Act (IRA), LGES lost KRW31.6 billion.
SK On had expected to come out of the red as its losses narrowed quarter after quarter in 2023. However, the company reported a net loss of KRW331.5 billion in the first three months of 2024, similar to what it achieved a year ago. It was also the ninth consecutive quarter that SK On saw a loss.
As its battery sales in the North American market declined, SK On's AMPC dropped from KRW240.1 billion in the fourth quarter of 2023 to KRW38.5 billion in the first quarter of 2024. Samsung SDI's operating profit was KRW267.4 billion in the first three months of the year, down 29% from 2023. However, some said the company had better profitability because it primarily supplies premium EV batteries.
AMPC for Samsung SDI's US site was reflected for the first time in its first-quarter financial performance. Since the company's joint battery plant with Stellantis will likely start operation as soon as the second half of 2024, AMPC is expected to drive the growth of Samsung SDI's future revenue.
According to industry analysis, slow EV demand growth affected customers' pace of consuming inventories. Moreover, metal prices have declined since the second half of 2023, which has been reflected in battery costs. These factors impacted the three South Korean battery makers' performance, which will unlikely improve significantly in the first half of the year.
LGES said the falling prices of lithium and other major battery metals will continue to affect its financials in the second quarter of 2024. Customer demand from Europe and other main markets still takes time to recover.
According to South Korea-based SNE Research, the annual growth rate of global EV battery usage was 107% in 2021 and 69.3% in 2022. The number continued to decline to 38.8% in 2023 and is expected to drop further to 16.3% in 2024. In addition, the US presidential election result might also affect the country's EV subsidy policies, which concerns the battery industry.
Automotive electrification will continue
LGES has adjusted its investment plan in response to the sluggish market. It had planned to maintain its capital investment at KRW10 trillion, the same as 2023, but said at an earnings call it would downsize the investment. SK On also implied that it will flexibly revise its schedules for production expansion in Europe and China and enhance its cost structure.
Samsung SDI was the only one to say it would increase investment. Given the mid-to-long-term market outlook, the company will proceed with expansion in Hungary, Malaysia, and the US. Its capital expenditure is expected to rise from about KRW4 trillion in 2023 to KRW5 trillion.
Some analysts said that although the demand for EVs has slowed, automotive electrification remains on track for the mid-to-long term. Hyundai, Kia, Ford, General Motors, and Stellantis all plan to roll out new EV models in the second half of 2024. This will facilitate demand because consumers will have more options in vehicle prices and classes.
Prices of lithium, nickel and other metals have bounced back since February 2024. Battery manufacturers have also started operations at their North American sites. Their profitability is expected to improve.
