SK Innovation Co. has raised its stake in Beijing BESK Technology Co. (BESK), an electric vehicle (EV) battery producer jointly established with China’s state-run Beijing Electronic and Beijing Automotive Industry Holdings, from 40 percent to 49 percent.
The company set up the joint venture company in 2013 with an investment of 1 billion yuan (US$148.86 million or 168.29 billion won) but it halted operation of the EV battery packing plant in 2017 due to a drop in orders in the wake of Beijing's discriminatory subsidy policy against non-Chinese manufacturers. However, SK Innovation has been seeking to penetrate the Chinese domestic market at a faster pace after it announced its plans to build a 7.5 GW EV battery plant in Changzhou, China, in August last year.
SK Innovation participated in the paid-in capital increase of BESK at the third quarter of last year and increased its stake in the firm to 49 percent, according to EV battery industry sources on March 19. The company invested a total of 114.60 billion won (US$101.37 million) to secure an additional stake in BESK, while reducing its stake in a special purpose company (SPC) which was founded by Beijing Electronic and Beijing Automotive Industry to set up BESK from 60 percent to 51 percent. The Chinese SPC still has the management rights of BESK but SK Innovation is expected to have a bigger say in the firm in the future.
SK Innovation secured the additional stake in BESK because of the establishment of BEST, a battery production subsidiary set up by BESK in August last year. BEST is constructing a plant capable of producing 7.5 gigwatt-hours of EV batteries in Changzhou, Jiangsu Province, and construction is scheduled for completion in 2020. The two companies will jointly invest 5 billion yuan (US$744.32 million or 841.45 billion won) for construction and operation of the Changzhou factory until 2020. As BESK owns a 100 percent stake in BEST, SK Innovation needed to expand its voting rights through the capital increase in order to have more say in battery production.
SK Innovation’s plan to expand its presence in the Chinese battery market has been indeed gaining momentum from the third quarter of last year when the company raised its stake in BESK. The company announced its plans to invest 400 billion won (US$353.83 million) and build a lithium-ion battery separator (LiBS) and ceramic coated separator (CCS) production factory in Changzhou, China, in October last year. SK Corp., the holding company of SK Innovation, invested 270 billion won (US$238.83 million) to acquire its stake in China’s Lingbao Wason Copper Foil Co., which produces copper foil, a major part of EV batteries, in November last year, accelerating its inroads into the Chinese market at the group level. In particular, SK Innovation and other South Korean battery producers will have a better opportunity as the Chinese government will scrap the discriminatory EV battery subsidy policy in 2021.
The future role of BESK is also attracting attention. BESK has been importing SK Innovation’s cells produced in South Korea and manufacturing battery packs in China until now. However, BESK posted 5.70 billion won (US$5.04 million) in net loss in 2014, a year after the establishment, and recorded a net loss of 6.20 billion won (US$5.48 million) and 6 billion won (US$5.31 million) in 2017 and 2018, respectively, due to the THAAD issue. The company also had an operating loss of 8.20 billion won (US$7.25 million) and 6.30 billion won (US$5.57 million) in 2017 and 2018, respectively. In short, the more the company operates the factory, the bigger its loss gets. This is why BESK is forecast to play a role just as a holding company of BEST in the future.