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SK Innovation bets on batteries amid rising demand for electric cars

Refining company plans to build production line in Europe this year

SK Innovation CEO Kim Jun said the company would strengthen its battery business to cope with rising demand for electric vehicles. (Photo by SK Innovation)

SEOUL -- The chief executive of SK Innovation, which owns South Korea's largest oil refinery, said Tuesday that it would increase investment in its battery business to cope with the fast-growing market in electric vehicles.

Kim Jun said that the company plans to expand its share of the global battery market to 10% by 2020 and 30% by 2025 by investing in research and development as well as production facilities. Last year, the company, which also has a petrochemicals business, produced 1.1 gigawatt hours (GWh) of batteries, accounting for 4.4% of the global market.

"We will bet on EV batteries seriously. We have a proven track record in the field with supplying to Daimler and Hyundai Motor," said Kim at a press conference. "The number of battery orders will increase hugely. The main game will begin now."

The announcement comes as the global battery market is expected to grow quickly, with analysts predicting it will jump to 110 GWh in 2020, from 25 GWh in 2016. In 2025, the market is expected to reach between 300 and 1,000 GWh. In South Korea, LG Chem and Samsung SDI have led the market while SK Innovation remains a latecomer.

But, Yoon Ye-seon, president of the company's battery business, said that SK Innovation would build production lines in Europe later this year to supply batteries to German automaker Daimler, which owns the Mercedes-Benz brand.

"We are considering building a battery plant in Eastern Europe, such as Hungary and the Czech Republic. Eastern Europe offers cheap and quality labor forces. Germany is too expensive to build," said Yoon at the conference.

He said operations of a factory would start next year, with construction taking about a year. The company is currently looking for a site. Yoon declined to say how much they would invest in the project.

Analysts said that the company's focus on the battery business is the right direction to take, as it can narrow the gap between itself and market leaders like LG Chem and Samsung SDI.

"There is nothing wrong in SK Innovation gearing up for the battery business," said Son Young-joo, an analyst at Kyobo Securities. "The company has abundant cash to invest in new business. And its technology gap with market leaders is not so big. It is a good chance to follow them as the market will be reshaped by a few leading players later."

However, Yoon said that the company's plan to set up a battery plant in China through a joint venture with a local player had come adrift due to the Chinese government's policy of protecting domestic companies.

For SK Innovation's main oil refining business, CEO Kim said the company was looking to reach the retail market in Southeast Asia by partnering with local players, without specifying in which country.

Shares of SK Innovation were flat at 170,500 won on Tuesday, after hitting a one-year high of 176,500 won on April 27. The benchmark Kospi slipped 0.39% to 2,343.68, extending its loss for two days since May 26 when it touched a record high of 2,355.30.

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