Korea's battery makers, including LG Energy Solution, Samsung SDI and SK On, decided to cut capital expenditures (CAPEX) this year. With the U.S. electric vehicle market slumping after the launch of the Donald Trump administration and battery demand falling, they chose to focus on strengthening financial soundness rather than increasing investment.
According to the industry on Feb. 5, the three battery companies recently announced their 2024 results and said they will scale back this year's capital spending. Battery companies steadily increased investment from 2022 to 2024, but shifted to a reduction stance starting last year.
LG Energy Solution decided to cut this year's capital spending by more than 40% from a year earlier. Instead, it plans to increase asset utilization by converting existing EV battery production facilities to energy storage system (ESS) use, and to focus on cash flow management and stabilizing its financial structure.
LG Energy Solution spent 389.5 billion won on capital expenditures in 2021 and expanded the scale of investment through 2024. It spent 629.1 billion won in 2022, 1.0891 trillion won in 2023 and 1.2547 trillion won in 2024 on capital expenditures. However, last year's capital spending was 1.0417 trillion won, about 17% less than a year earlier, and the company decided to cut further this year.
Samsung SDI, which spent 330 billion won on capital expenditures last year, also decided to reduce investment this year. In a recent earnings conference call, Samsung SDI said, "This year's capital spending will focus only on building lines at the Hungary plant and retrofitting the lithium iron phosphate (LFP) ESS line at the U.S. plant, and the overall scale will be slightly lower than the previous year."
Samsung SDI also expanded capital expenditures through 2024 but changed course starting last year. After spending 260 billion won on capital expenditures in 2022, Samsung SDI increased investment to 430 billion won in 2023 and 660 billion won in 2024 over three years. However, last year's capital spending was sharply reduced to about 50% of the previous year, and the company decided to cut further this year.
SK On is in a similar situation. SK On spent 500 billion won in 2022, 700 billion won in 2023 and 750 billion won in 2024 on capital expenditures, but last year it invested only 350 billion won, less than half of the previous year. This year's planned capital spending is 130 billion won.
The reason the three battery companies decided to reduce capital spending again this year, following last year, is that the U.S. electric vehicle market has visibly slumped since the tax credit of up to $7,500 (about 11 million won) for new EV buyers ended at the end of September last year.
According to U.K.-based EV market research firm Rho Motion, 20.7 million electric vehicles were sold worldwide last year. EV sales in China and Europe were 12.9 million and 4.3 million, up 17% and 33% year over year, respectively. In contrast, EVs sold in the North American market totaled 1.8 million, down 4% from the previous year.
A battery industry official said, "The reason the three Korean battery makers ramped up capital spending 3 to 4 years ago was because they expected growth in the U.S. EV market." The official explained, "Since the launch of the Trump administration, the U.S. EV market has backpedaled, and they changed strategy to utilize already secured local U.S. production facilities rather than making new investments."