SK On to keep tightening belt despite first-ever profit

Battery maker expects limited impact from possible Trump reelection

By Park Jae-hyuk

SK On, the battery manufacturing unit of SK Innovation, made its first-ever quarterly operating profit of 24 billion won ($17.5 million) since it was launched as an independent entity in October 2021.

The battery maker said it was able to achieve the operating gain due to efforts to reduce costs and maximize operational efficiency.

During an earnings call, Monday, SK Innovation, the parent company of SK On, said it swung to red with a consolidated operating loss of 423.3 billion won in the third quarter of this year. However, SK On posted an operating profit of 24 billion won during the same period, buoyed by lowered inventory and reduced costs.

"We will keep working on securing grounds for a consistent and stable profit structure," an SK On official said.

Along with other battery makers, SK On has been struggling with the ongoing slowdown in global electric vehicle (EV) demand. In July, the battery maker entered emergency mode, freezing the annual pay rates of all executives and ordering its employees to stop working from home. The company also carried out its first-ever voluntary redundancy program last month.

The third-quarter operating profit was also attributed to financial efforts, rather than improvements in its sales. During the July-September period, SK On's revenue backpedaled to 1.43 trillion won from 1.55 trillion won in the second quarter. The size of its tax credit in compliance with the U.S. Inflation Reduction Act (IRA) also fell to 60.8 billion won from 111.8 billion won.

Amid the unfavorable market conditions, SK On reiterated that it will continue pursuing cost-reduction measures, such as scaling down its investments.

“We will scale down our capital expenditures significantly after 2025,” SK On Chief Financial Officer Kim Kyung-hun said during a conference call on its third-quarter earnings.

The battery maker added that it will delay mass production at the second factory of its joint venture with Ford Motor, which is under construction in the U.S. state of Kentucky.

“A factory of our joint venture with Hyundai Motor is under construction in the U.S. state of Georgia, but the beginning of its operation is variable according to the carmaker’s plan for the EV production,” Kim said.

In response to a question about SK On’s preparedness to cope with the outcome of the U.S. presidential election taking place on Tuesday (local time), the company said that there is a slim chance of the abolishment of the IRA, which gives tax credits to eco-friendly vehicles, even if former U.S. President Donald Trump returns to the White House.

“Younger Republicans are feeling the need to protect the environment, and U.S. oil companies also changed their stance,” said Jun Hyun-wook, who is in charge of investor relations at SK On. “Trump is expected to take limited action, such as reducing subsidies.”

Along with SK On, LG Energy Solution CEO Kim Dong-myung also told reporters last Friday that the U.S. election will have a limited impact on the Korean battery industry.

Meanwhile, SK Innovation attributed its operating loss of 423.3 billion won to weaker oil prices and the global economic recession, which hurt the company's refining and petrochemical businesses.

With the completed merger with SK E&S earlier this month, SK Innovation also vowed to enhance shareholder returns by securing a stable financial structure and accelerating synergy creation.

The energy firm unveiled its plan to achieve a return on equity of 10 percent and a shareholder return rate of over 35 percent by 2027, in line with the government’s Corporate Value-up Program.

“Through the merger with SK E&S, we have laid the foundation for establishing a stable financial structure,” SK Innovation CFO Kim Jin-won said. “We will continue to enhance shareholder returns by accelerating synergy creation in the future.”