SK Innovation will split off its fast-growing battery business as it pushes ahead with plans to vastly increase production to take advantage of rising global demand for electric vehicles.
South Korea’s third-largest conglomerate plans to form SK Battery in October after seeking approval from shareholders on Sept. 16, the company said in a statement Wednesday.
It will also separate its oil exploration and production operations into a new entity. Both companies will become wholly-owned subsidiaries after the split.
SK Innovation is planning to lift battery capacity to 200 gigawatt-hours by 2025 from about 40 GWh currently.
The company will aim to produce 500 GWh by the end of the decade. The expansion is part of its plan to invest 30 trillion won ($26.2 billion) through 2025 to reach net-zero emissions in all of its operations before 2050.
Splitting off the battery unit will make it easier for the business to raise funds for its expansion, rather than competing against other parts of SK Innovation.
While an initial public offering of the battery unit is being considered, it’s too early to decide on details such as timing and size, Kim Yangseob, head of the company’s finance division, said at a briefing Wednesday.
“The decision to split the businesses is to set up a management system that will help to strengthen their competitiveness,” the company said in the statement. “They will be able to better respond to the business environment to make timely investment decisions.”
Shares of SK Innovation fell as much as 7.9 percent in early Seoul trading, the biggest intraday decline since July 1 when the company first announced it was considering hiving off the battery business into a new entity. Investors would have preferred a clean spin-off that would have given them exposure to a pure battery play.
CEO Kim Jun said in July that if SK seeks an IPO of the battery business all options will be considered, including a listing on New York’s Nasdaq exchange.
In the meantime, funds for the battery business’s expansion will be raised from internal resources as well as debt, Kim Yangseob said.
Demand for batteries has surged this year as governments provide incentives for consumers to buy electric cars as part of efforts to reduce carbon emissions.
Global EV battery sales more than doubled in the first half, led by manufacturers in China, according to SNE Research. SK Innovation said it has an orderbook of 1,000 GWh for EV batteries, worth about 130 trillion won.