Shocking Profitability of Electric Vehicle Battery Industry



For every dollar that Samsung SDI earns from selling electric vehicle batteries, it takes only a penny in profit. In contrast, Samsung Electronics earned 30.4 cents for every dollar of chips sold from July to September of this year.

It’s no wonder that Samsung doesn’t have its own electric vehicle battery factory in the United States, but instead invests $ 17 billion to build its second chip factory there.

As the numbers show, the EV battery business, despite the market hype, is not as attractive in terms of profitability. This winter, the profitability of the South Korean battery trio – LG Energy Solution, Samsung SDI and SK On – is expected to worsen further as the global chip shortage hits the electric vehicle market hard.

No chip, no EV, no battery

According to Kim Hyun-soo, analyst at Hana Financial Investment, the current chip shortage crisis is expected to continue until next year. Without enough chips, automakers can’t make electric vehicles, and battery suppliers have no choice but to cut production.

“To make an electric vehicle, you need chips worth $ 900, which is almost double that of a vehicle with an internal combustion engine. Due to the shortage of chips, South Korean battery companies, including Samsung SDI, manufacture fewer EV batteries than they normally do and therefore suffer losses, ”Kim said.

Kim Byung-joo, executive of Swedish market tracker EV Volumes, said: “Since last month, Korean battery makers have reduced the uptime of their factories.

Electric vehicle batteries have a shelf life just like food and must be delivered to automakers on time, the executive said. The condition of EV batteries deteriorates over time and they cannot be stored for too long. This is why Korean battery companies are making fewer batteries for electric vehicles instead of storing them and later selling them to car manufacturers.

Make 1% profit

Samsung SDI, for example, suffered bleeding losses worth 2,000 billion won ($ 1.7 billion) between 2012 and 2019 from its electric vehicle battery business. It was not until this year that the Samsung group’s battery unit finally achieved 1% profitability.

As to why it took so long for Korean battery players to turn a profit, experts point to the practice of price-rigging in the global metals market.

Electric vehicle batteries use expensive metals as raw materials, including cobalt, nickel, and manganese. These metals represent 70 to 80% of total production costs. Knowing that Korean battery makers cannot do business without these metals, some investors are intentionally driving up metal prices.

“In the metals market, price rigging is common and the price does not always keep up with supply and demand. When prices rose, manufacturers of electric vehicle batteries suffered losses. It wasn’t until 2019 that automakers started paying offsets, ”analyst Kim said.

Samsung SDI, for example, makes small batteries for computer gadgets. Smartphone and laptop makers made up for the losses of Samsung SDI when metal prices fluctuated, not because of good faith, but because batteries are an irreplaceable component inside computing devices. As a result, Samsung SDI’s small battery business has maintained an average profitability of 11% over the past five years.

However, before the electric vehicle boom, when internal combustion engine vehicles were the mainstream, car manufacturers had no reason to follow this practice.

But the tide has turned in 2019. With the entry into force of stricter carbon emissions regulations from 2020, Korean battery suppliers have gained bargaining power over automakers who have rushed to sell more. of electric vehicles. In early 2019, Samsung SDI, for example, risked its existing Volkswagen orders and asked the German automaker to start offsetting its losses. Now, it has become a practice in the electric vehicle industry to compensate battery suppliers when metal prices rise.

Pay the bills

Another factor limiting profitability is the fixed cost.

According to DGP Investment Group, Korean manufacturers of electric vehicle batteries deposit 1-2% of their revenue as savings in the event of a recall. These savings are calculated as losses on the balance sheet.

In addition, to meet the growing demand for batteries for electric vehicles, each of them must invest at least 2,000 to 3 trillion won per year so that the expansion does not fall behind in terms of scale, otherwise they would lose potential customers to competitors with greater capabilities.

Despite the fixed costs, industry experts predict that the profitability of Korean electric vehicle battery manufacturers will eventually reach 5% – the average profitability enjoyed by auto parts manufacturers – because electric vehicles are inherently more profitable than vehicles. internal combustion engine.

“The average profitability of automakers is around 10%, while that of auto parts suppliers is around 5%. General Motors is forecasting long-term profitability of 12-14%, and China’s BYD recently increased the price of its batteries by 20%. These are examples that the profitability of Korean suppliers of electric vehicle batteries may increase in the future, ”said analyst Kim.

By Kim Byung-wook (

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