A leading South Korean producer of electric vehicle (EV) batteries has declared a crisis, as its customers in Europe and the USA are struggling with disappointing EV sales.

SK On, the world's fourth-largest manufacturer of EV batteries behind Chinese giants CATL and BYD as well as South Korean rival LG Energy Solution, has recorded ten consecutive quarters of losses since its spin-off from the parent company in 2021. Net debt has more than quintupled during the same period, from 2.9 trillion won ($2.1 billion) to 15.6 trillion won, as Western EV sales fell far short of expectations.

In light of the increasing losses, CEO Lee Seok-hee announced a series of cost-cutting and labor measures last Monday, describing them as a state of "emergency management.

We are backed against the wall," Lee wrote in a letter to the staff. "We must all stick together.

Within the South Korean SK Group, more radical solutions are also being discussed. One option being considered is the merger of SK On's parent company, SK Innovation, with SK E&S, the highly profitable energy company in the group specializing in the production of liquefied natural gas. The potential merger is set to be discussed at the board level this month.

SK On has made a series of aggressive investments in the USA and Europe in recent years, betting on a largely predicted boom in demand for EVs. However, the company has announced extensive layoffs for workers at its plant in the U.S. state of Georgia and postponed the opening of a second plant in Kentucky, a joint venture with its main customer Ford.

The Chinese producers CATL and BYD dominate the global battery industry with a combined market share of 53.2 percent, according to the South Korean consulting firm SNE Research. Their production and sales continue to focus on the domestic market, where the adoption of EVs is significantly higher than in Western countries.

As Washington and Brussels try to prevent a flood of imported batteries from China, South Korean manufacturers like LG, SK, and Samsung SDI, as well as the Japanese company Panasonic, have the opportunity to achieve future growth in Western markets.

Non-Chinese battery manufacturers such as SK On have benefited from billions of dollars in subsidies under President Joe Biden's Inflation Reduction Act in the USA.

Tim Bush, a Seoul-based battery analyst at UBS, however, said that South Korean battery manufacturers have been 'severely disappointed' by US automakers, as they have failed to produce EVs that are sufficiently attractive to mass-market consumers to meet their own optimistic sales forecasts.

He noted that General Motors had predicted until last year to sell 1 million EVs by 2025. However, only 21,930 were sold in the second quarter of this year.

The Korean battery manufacturers did not make blind investments – everything they invested was based on order books with fixed volumes and prices," said Bush. "But the automakers have not invested enough in the production of high-quality and affordable EVs.

He said that SK is in a worse position than its South Korean rivals LG and Samsung SDI, both of which have also scaled back their investments, because, as a latecomer to the global battery race, it offered its customers generous pricing terms, which are now proving detrimental.

However, Bush argued that while the adoption of electric vehicles is proceeding more slowly than expected, the transition to EVs remains "inevitable.

As long as the broader SK Group continues to view SK On as a prestige project and provides it with the support it needs to weather the current storm, the long-term future of the company is likely to be secured," he said.