Korea's three battery makers (LG Energy Solution, Samsung SDI, SK On) are all expected to post losses in the first quarter of this year. That's because, while the global electric vehicle market's recovery remains sluggish, the companies have yet to see any meaningful improvement from batteries for energy storage systems (ESS), cited as a new growth driver.
LG Energy Solution said on Apr. 7 that its first-quarter operating loss came to 207.8 billion won on a preliminary basis. Samsung SDI and SK On, which have yet to release earnings, are also widely expected to have posted losses in the first quarter. According to FnGuide, as of Apr. 10, Samsung SDI's estimated first-quarter operating loss is 274.3 billion won, and SK On is projected to record an operating loss of around 300 billion won.
The electric vehicle market, the downstream industry for batteries, remains depressed. After the electric vehicle purchase tax credit under the U.S. Inflation Reduction Act (IRA) was scrapped at the end of September last year following the launch of the Donald Trump administration, demand fell and has not recovered. According to auto market researcher Cox Automotive, U.S. electric vehicle sales in the fourth quarter of last year plunged 36% from a year earlier.
With electric vehicle sales down, the three battery makers' factory utilization hovered around 50% last year, and the advanced manufacturing production tax credit (AMPC) subsidies from the U.S. government are expected to shrink sharply. The United States operates a system that provides subsidies by reimbursing a set amount per kWh as AMPC when battery companies produce and sell products from plants in the country.
LG Energy Solution's AMPC receipts for the first quarter came to 189.8 billion won, down 43% from the fourth quarter of last year (332.8 billion won). Samsung SDI and SK On are also expected to see sharp declines in receipts.
In the domestic market, electric vehicle demand has revived this year as international oil prices surged on the back of the war between the United States and Iran. According to Kaizuyu Data Research Institute, domestic passenger electric vehicle sales in the first quarter reached 72,321 units, up 153% from the previous year (28,547 units), hitting an all-time high.
However, a significant share of the rebound in electric vehicle sales went to Tesla, the U.S. electric vehicle maker, so the impact on domestic battery companies was limited. According to the Korea Automobile Importers & Distributors Association (KAIDA), Tesla's domestic sales in the first quarter surged 335.1% year over year to 20,964 units, ranking No. 1 not only in the electric vehicle market but also in the overall imported car market, ahead of BMW and Mercedes-Benz.
Tesla's Model Y, the mid-size sport-utility vehicle (SUV) that sold the most in Korea during this period, is produced at the Shanghai Gigafactory in China and is equipped with batteries not only from LG Energy Solution but also from China's CATL and Japan's Panasonic.
A battery industry official said, "Although domestic electric vehicle sales increased in the first quarter, it was not enough to have a meaningful impact on the results of Korea's three battery makers," adding, "What matters is whether demand for electric vehicles increases in overseas markets such as Europe and the United States."
Recently, the three domestic battery makers have been positioning the ESS business as a new growth engine, converting existing electric vehicle battery production lines into ESS battery facilities. LG Energy Solution is converting five production bases in North America to ESS battery lines, while Samsung SDI plans to produce ESS batteries at StarPlus Energy (SPE), its joint venture with Stellantis in Indiana. SK On has converted its Georgia production base in the United States to an LFP battery line.
However, many say it will take more time for results to improve through ESS. The reasons are the heavy expense burden from converting production lines and the lower profitability of ESS batteries compared with electric vehicle batteries.
ESS mainly uses LFP (lithium iron phosphate) batteries, and price competition is intense due to low-priced offensives by Chinese companies. Until now, domestic battery makers have focused on developing and producing NCM (nickel cobalt manganese) and NCA (nickel cobalt aluminum) batteries, which have higher energy density and are more expensive than LFP batteries.
Even so, the financial investment industry expects gradual improvement from the second half as ESS sales increase. Noh Woo-ho, an analyst at Meritz Securities, said, "The key is the timing when ESS and electric vehicle battery sales rise together, and we are currently searching for a rebound." Samsung SDI President Choi Joo-sun also said at this year's shareholders meeting, "In the second half, we will achieve a return to quarterly profit."
The battery industry has high expectations for the domestic production promotion tax regime to be announced in July, the so-called "Korean version of the IRA." The system would cut taxes in proportion to volumes produced domestically by advanced industries such as semiconductors and batteries, and it was a key campaign pledge of President Lee Jae-myung. The three battery makers' domestic production share is estimated at about 10%.
The battery industry is asking the government for production subsidies instead of tax cuts. An industry official said, "Providing cash directly helps corporations more than reducing taxes when they are in the red."
However, it is uncertain whether the government will accept the request. If the government directly supports the production expense of a specific industry, it could be interpreted as violating the World Trade Organization (WTO) rules on subsidies. Many also say it would be inconsistent with fairness compared with other industries.
A government official said, "If subsidies are provided to the battery industry but only lead to a one-off drop in selling prices, the effect will inevitably be limited," adding, "We need to decide support measures by comprehensively considering whether the battery industry can grow in the long term."