SK Innovation considers spinning off battery business

SK Innovation is reviewing the possibility of spinning off its battery business to maximize the value of the South Korean company's overall portfolio, CEO Jun Kim told investors earlier this month.

The company has secured more than 1 TWh worth of electric vehicle (EV) battery orders estimated to be worth about 130 trillion South Korean won ($114 billion) for the first time, and expects additional deals from international automakers.

Dong-Seob Jee, president of SK Innovation's battery business, said during "SK Innovation Story Day" on 1 July that the company will become the world's third-largest producer in terms of monthly sales by the end of 2022. The top two are China's CATL and SK Innovation's domestic and international rival LG Energy Solution. The company is only sixth in the rankings at the moment, according to IHS Markit figures.

SK Innovation expects to significantly increase its production capacity. Jee told investors that "from the current 40 GWh level, [production capacity] is expected to reach 85 GWh in 2023, 200 GWh in 2025, and more than 500 GWh in 2030."

The company is expanding its battery production base in the US and Hungary as well as in South Korea and China. Mercedes-Benz, Hyundai-Kia Motors, and Ford are among SK Innovation's battery business customers.

In May, SK Innovation and Ford signed a memorandum of understanding to create a battery joint venture (JV) called BlueOvalSK. The JV aims to produce about 60 GWh annually starting from the middle of this decade.

SK Innovation is already investing in two US battery plants outside of the JV. It plans to spend $2.5 billion on the plants, which will have a combined annual capacity of 21.5 GWh. Construction is already underway on the first one.

The US plants were in jeopardy earlier in 2021 before SK Innovation struck a last-minute deal with LG Energy Solution to close the book on a long-running electric vehicle intellectual property dispute. The two settled legal disputes in the US and South Korea and SK Innovation agreed to pay LG Energy Solution W2 trillion ($1.76 billion) in the form of lump-sum payments and a royalty.

The deal threw a lifeline to the Biden administration and customers including Ford and Volkswagen. The Biden administration's "Build Back Better" mantra and climate goals depend on ramping up domestic production and use of EVs, among other things.

The company did not provide a timeline for the review or potential spinoff.

But SK Innovation has experience in spinning off clean energy units. In April 2019, the company spun off its battery material business as SK ie technology. The unit produces lithium-ion battery separators for electric vehicles. An initial public offering for 30% of SK ie technology in April this year raised about W2.25 trillion ($1.98 billion).

'Carbon to Green'

The potential spinoff was one of a number of announcements by SK Innovation at the 1 July event, many hewing to a theme of moving away from hydrocarbons to green technology, which it summed up with a slogan of "Carbon to Green."

The company aims to achieve net-zero GHG emissions across its businesses before 2050, including by 2035 at its battery and separator operations. The company still owns a refining unit and a chemical business, which it said will achieve a 50% emissions reduction by 2030 and reach net-zero before 2050.

It plans include developing eco-friendly processes; switching to low-carbon products; and implementing carbon-reduction technologies such as carbon capture technology.

The company is planning to invest a total of W30 trillion ($26 billion) through 2025 for green growth, Jong-hoon Kim, chairman of SK Innovation, said.

SK Innovation aims to increase the proportion of its green assets to 70% from the current level of 30%. It aims to recycle 100% of the plastics it produces, or more than 2.5 million mt/year, by 2027, and reduce usage, as well as increasing the proportion of eco-friendly products to 100%. "SK Global Chemical will generate more than W600 billion in EBITDA with green business in 2025," it said.

New horizons

SK Innovation has also decided to expand its business areas to energy storage systems, flying cars, and robots, and also to develop new businesses based on EV batteries. This includes a battery-as-a-service platform for efficient management of the life cycle of batteries, it said.

Battery recycling will also be part of the change as it has developed a lithium recovery technology for batteries based on refinery technologies and applied for 54 patents related to the technology. The company believes it can reduce the carbon generated from lithium mining by 40-70% using the new technology, it added.

SK Innovation plans to start trial production sometime in 2022 and hopes to be operating commercial plants in South Korea and elsewhere by 2024, it said. The company expects to recycle 30 GWh of batteries in 2025, it added.

--Based on original reporting by Kartik Kohli, ChemicalWeek