SK On says return to profit is no fluke, bets on ESS pivot for turnaround

SK On is moving to accelerate its profitability recovery after returning to the black in the second quarter, with a strategy centered on cost cuts and an expansion of its energy storage system business rather than one-off gains.

Kim Young-gwang, SK On's head of financial management, said Thursday at SK Innovation's second-quarter earnings conference call that profit improved quarter-on-quarter even excluding one-time factors, driven by cost-reduction efforts. "We expect to deliver even more visible results in the second half," he said.

SK On posted an operating profit of 821.8 billion won ($567 million) in the second quarter, swinging to profit for the first time in seven quarters. The results were driven by higher sales volumes in Asia, receipt of customer compensation payments and an increase in US Inflation Reduction Act tax credits, while structural cost savings from supply chain diversification and production efficiency improvements also began to take full effect.

SK On identified ESS business expansion as the key pillar of its second-half profitability push. With the electric vehicle market recovering more slowly than expected, the company plans to convert some existing EV production lines to ESS lines to improve facility utilization.

"Surging demand for global AI data centers and clean energy is expected to drive strong growth in the ESS market," Kim said. "We are reviewing ways to operate existing facilities and assets more efficiently, including converting some EV lines to ESS lines and expanding ESS order intake."

The company is specifically considering line conversions at its North America operations and its domestic Seosan factory, with any further conversions to be decided based on the scale of future orders. SK On said conversions that do not require a change in cell format involve a limited scope of equipment modifications, keeping capital expenditure burdens manageable.

The company is also working with SK Group affiliates to develop an integrated ESS solution for AI data centers, though no specific projects or supply contracts have been finalized.

On the North American EV market, SK On expressed optimism about a second-half recovery, citing California's reintroduction of EV subsidies and recent signs of demand improvement. In Europe, the company said it is negotiating volume stabilization and pricing with major automakers while reshaping its portfolio around higher-margin programs.

"In the near term, we are entering a trajectory of gradual quarter-on-quarter improvement through cost reduction and volume recovery," Kim said. "Over the medium to long term, we will pursue a qualitative transformation of our business portfolio by expanding ESS order intake."