In a significant development for the global battery market, SK On has officially completed a tripartite merger as of February 6. This newly formed entity will operate under the SK On brand, positioning itself as a "global battery and trading company." The merger includes SK Trading International and SK Enterm, two companies that bring valuable expertise and assets to the tableSK Trading International is noted for being Korea's only dedicated crude oil and petroleum trading company, while SK Enterm is the country’s largest commercial oil terminal operator, specializing in the storage and management of oil cargo.

The merger marks a strategic pivot for SK On, whose revenues and assets were valued at approximately 130 trillion won and 330 trillion won, respectively, prior to the mergerExpectations are already set high, with projections suggesting a post-merger valuation of 620 trillion won in revenues and 400 trillion won in assets

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Converting these figures at the latest exchange rates, this suggests that SK On could manage assets in the vicinity of 200 billion yuan after the consolidation.

The essence of this merger lies not just in financial expansion but also in enhancing competitiveness in raw materials, crucial for the sustainability of SK On's operationsBy venturing into new mineral trading areas such as lithium and nickel, SK Trading International aims to secure growth dimensions that will drive future profitabilityMeanwhile, SK Enterm’s inclusion is set to bolster SK On's trading capabilities by providing necessary storage facilities.

Post-merger, SK On anticipates a strengthened profit structure, with an estimated increase of about 500 billion won in earnings before interest, taxes, depreciation, and amortization (EBITDA). The sensitivity to external market fluctuations is also expected to diminish, owing to the limited capital expenditure, suggesting a pathway for stable profit generation.

Historically, SK On has established itself as a renowned manufacturer of lithium batteries, originally a segment of SK Innovation

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The company's strategic global expansion initiatives began as early as 2010, with entry into the Chinese market around 2020. SK On carved its own path in 2021 when it spun off from SK Innovation, seeking to establish a more focused identity in battery manufacturing.

According to recent statistics released by SNE Research, SK On ranked fifth in terms of global power battery installation volume for January to November 2024, achieving an impressive 35.5 GWh with a market share of 4.5%. Notably in markets outside of China, SK On performed even better, seizing third place with a market share of 10.8%.

Despite these achievements, SK On is navigating stormy waters, facing significant challenges primarily on three frontsFirst is the palpable threat from Chinese battery manufacturersData reveal that while SK On's annual installation volume has remained fairly stable, its market share has notably declined

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In the same timeframe of 2024, SK On, with a market share of 4.5%, saw a decrease from 5.1% in 2023, largely due to competitive pressures from Chinese firms.

Secondly, SK On's primary market—Europe and the US—has shown signs of weaknessThe American electric vehicle market has experienced downturns since 2024, and European sales growth has stalled, hindered by subsidy cuts and shifting carbon emission regulationsThese changing dynamics cast a shadow over SK On's growth prospects.

Lastly, SK On faces technological hurdlesMany companies in the Japanese and Korean battery sectors, including SK On, have placed considerable emphasis on ternary lithium batteriesHowever, there has been a noticeable rise in the market share of iron lithium batteries, which continue to encroach upon the territory historically dominated by ternary batteriesThis technological shift only adds to the headwinds SK On faces in a rapidly evolving market.

From a financial perspective, SK On has been grappling with challenges since its separation, struggling to reach profitability

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The company recorded losses for ten consecutive quarters, with 2023 marking a staggering loss of 581.8 billion won (approximately 31.42 billion yuan). It was not until the third quarter of the last year that SK On finally managed to break into positive territory, reporting a slim operating profit of 24 billion won (roughly 125 million yuan), a notable first since its independenceHowever, whether it can maintain this profitability in the fourth quarter of 2024 remains uncertain.

Given these internal and external challenges, SK Group is optimistic that the asset restructuring will revitalize SK OnThe integration process began as early as last July, with the successful completion marking a pivotal advancement for the companyNevertheless, the looming question remains: can the renewed SK On compete effectively against its Chinese counterparts? Present conditions suggest a challenging road ahead.

Further substantiating the competitiveness of Chinese battery manufacturers, SNE Research lists several Chinese firms among the top players in global battery installations for the period from January to November 2024. Notable mentions include industry leaders such as CATL, BYD, and others, cumulatively reflecting China's robust competitive edge in this critical market.