A South Korean EV reversal would inspire copycats

LG

27/06/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to remove duplicate twitter
handle.)
    By Katrina Hamlin
       HONG KONG, June 27 (Reuters Breakingviews) - Splitting
out assets to capitalise on an electric-car boom was once a way
to charge up valuations for brands from Renault  RENA.PA  to
Geely. But South Korea's SK Group might go the other way and
merge its loss-making battery unit with another division as part
of a broader shakeup. As growth in the industry slows,
standalone EV businesses face a tough slog.
 South Korea's second-largest conglomerate is mulling a major
overhaul of its sprawling empire that spans over 200 companies
in chips, chemicals, hotels and more. One key question is what
the conglomerate will do with its struggling battery business.
Three years ago, the $8 billion SK Innovation  096770.KS , which
operates the country's largest oil refiner, split out its
batteries division into a standalone company, SK On. At the
time, EV mania had taken over global markets: Tesla's   TSLA.O 
stock rose nearly eightfold between the beginning of 2020 and
September 2021 when SK investors approved the plan.
One mooted idea as reported by local media is to combine SK On,
which has made a cumulative operating loss of about $1.7
billion, with a financially stronger business such as the
conglomerate's energy utility. SK Innovation has said it is
considering different strategic measures including mergers to
strengthen its competitiveness, but nothing has been decided.
Any deal will be a wake-up call for global automakers and their
suppliers. Renault separated EVs into its Ampere unit last year;
China's Geely has listed multiple EV brands including
Zeekr  ZK.N , while compatriot Great Wall Motor  601633.SS  spun
out its battery arm SVOLT. In 2022, South Korea's LG  003550.KS 
spun out its battery unit, LG Energy Solution <>, in an $11
billion initial public offering; the stock, alongside local
rival Samsung SDI's  006400.KS , is down by nearly a third since
the debut.
    As with SK On, those pure-play EV businesses now face an
uncertain future as global demand in electric cars slow. Revenue
at the South Korean battery-maker roughly halved year-on-year to
1.7 trillion won ($1.2 billion) in the first quarter of this
year. Car companies including SK client Ford Motor  F.N  have
reconsidered or pushed back planned EV investments.
    Combining a stalling battery business into a larger entity
won't solve a growth slowdown. But it might give executives more
flexibility to shore up its finances, including by paying down
debt. If SK makes a U-turn, it will be closely studied. 
Follow @KatrinaHamlin on X
     
    CONTEXT NEWS
    South Korea's SK Group is preparing to hold a two-day
strategy meeting beginning June 28 to discuss streamlining its
business to focus on key areas including artificial
intelligence, chips and batteries, Reuters reported on June 25.
The meeting's agenda includes considering options from mergers
to divestments, a source with direct knowledge of the matter
told Reuters.
    SK Innovation, the parent of South Korea’s largest oil
refiner SK Energy and battery maker SK On, is looking to merge
with energy affiliate SK E&S, The Korea Economic Daily reported
on June 20, citing sources.

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(Editing by Robyn Mak and Aditya Srivastav)
((For previous columns by the author, Reuters customers can
click on  HAMLIN/ katrina.hamlin@thomsonreuters.com;))