SEOUL -- SK Innovation is investing $2.5 billion in facilities to produce electric vehicle batteries in a bid to become a leading supplier to the global auto industry.
The South Korean company is building its first EV battery plant in the U.S. at a cost of 1.1 trillion won ($973.5 million), with plans to start production in 2022. The announcement follows news earlier this year of investments for new factories in Hungary and China amounting to more than $1.5 billion.
The group currently has one EV battery plant, in the coastal city of Seosan. Its total capacity will increase tenfold as a result of the investments, from 4.7 GW to 55GW by 2022. It is a sign of SK's determination not to remain an outlier in a market that is expected to grow exponentially in the coming decade.
Goldman Sachs estimates that sales of batteries to power cars will rise from under $10 billion to $60 billion by 2030, driven by a global push to reduce greenhouse gases.
The announcement to open facilities in the U.S. came two weeks after SK Innovation clinched an important deal to supply battery cells to Volkswagen, along with its bigger rivals LG Chem, Samsung SDI and CATL. The German automaker said SK Innovation would supply batteries for its North American and European markets.
"We have sharpened our edge in the battery business by having production sites in the key global markets as well as winning more orders," CEO Kim Jun said in a statement. "We will grow as the globe's top player in the battery business by being successful in the toughest market in the world."
Analysts said SK may have taken the first step toward becoming a top-tier player but that it needs to win more new orders to consolidate its status.
"The next year will be critical [for SK] as to whether it can leap forward to the top-tier level," said Hwang Yoo-shik, an analyst at NH Investment & Securities. "The investment in the U.S. is the first step toward this. Later, it needs to add more orders from Europe and China and expand capacity based on orders."
SK Innovation claims less than 2% of the global EV battery market, according to South Korean company SNE Research. Japan's Panasonic topped the list with a 22.7% share for the first eight months of this year, followed by Chinese makers CATL, with 19.5%, and BYD, with 11.5%. South Korea's LG Chem was No. 4, with 8.5%, while Samsung SDI was No. 6, with 4.1%.
However, SK Innovation is making progress with its technology, analysts said. "In terms of technology, SK has caught up to Samsung and LG, very much," said Lee Dong-wook, an analyst at Kiwoom Securities. "Its economic efficiency also improved a lot."
SK said it is diversifying production in the four key markets of the U.S., China, Europe and South Korea as a way to mind each country's regulations.
"We have no choice but to meet all of the different regulations from each country," said Kim Byung-do, a spokesman for SK Innovation. "In the U.S., we will mainly supply Volkswagen. The U.S. government demands that automakers use a certain portion of parts produced in the country."
Lee of Kiwoom Securities said SK is trying to hedge the risk of its gasoline business by investing in EV battery production. SK's main business is operating oil refiners, which accounts for 75% of its total revenue.