[SMM Anlalysis] Korea’s Battery Industry Enters a Phase of Utilization Adjustment

Utilization Trends Reflect Emerging Imbalances

Amid a moderation in electric vehicle (EV) demand growth, utilization rates across Korea’s major battery manufacturers have become more pronounced as an operating indicator.

As of 2025, average utilization levels remain around the mid-40% to low-50% range. Samsung SDI reported approximately 50%, LG Energy Solution 47.6%, and SK On 48.7%, based on their annual reports disclosed on March 16.

These figures suggest that a meaningful portion of installed capacity is not being fully utilized, pointing to a widening gap between production capability and actual output.

Demand-Supply Timing Mismatch

The current utilization levels are better understood as a result of timing differences between demand and supply, rather than a simple demand slowdown.

Automakers have adopted a more cautious procurement approach, reflecting inventory adjustments and broader market uncertainties. As a result, battery shipment growth has moderated compared to previous years.

On the supply side, however, capacity expansion continues to be reflected in the system, particularly in North America and Europe, where investment plans initiated in prior years are now materializing. Battery manufacturing facilities, once constructed, are not easily scaled down in the short term, leading to a structural lag in supply adjustment.

This dynamic has resulted in periods where capacity expansion outpaces near-term demand, with utilization rates adjusting accordingly.

Link to Cost Structure

Utilization trends are closely tied to the cost structure of the battery industry.

As a capital-intensive manufacturing sector, battery production involves a high proportion of fixed costs, including depreciation and labor. This structure requires a certain level of throughput for costs to be efficiently absorbed.

When utilization remains at lower levels, the same cost base is spread across a smaller volume of output, leading to higher unit costs. This effect becomes more visible during periods of rapid capacity expansion, when incremental supply is added ahead of full demand realization.

In this context, utilization serves not only as a measure of production activity, but also as an indicator of how effectively the cost structure is being leveraged.

Growth Continues, but with Adjustment

Global battery demand continues to expand. According to SMM, the global battery market recorded double-digit growth in 2025.

However, growth at the market level does not always translate into synchronized increases in production and shipments. The timing of demand realization, project execution, and supply ramp-up can differ, leading to short-term deviations in utilization.

The current environment reflects such a phase—where overall demand remains intact, but production is undergoing a period of adjustment.

Increasing Importance of Operational Execution

In this context, operational execution is becoming more relevant alongside volume growth.

Improvement in utilization can enhance cost absorption and support profitability, while prolonged periods of low utilization may weigh on margins. At the same time, utilization is influenced by multiple factors beyond demand, including production planning, customer ordering patterns, and product mix.

As such, it provides a more comprehensive view of the industry’s operating condition than shipment data alone.

Between Expansion and Efficiency

The battery industry has historically been assessed primarily on growth and capacity expansion, particularly during the rapid scaling phase of the EV market.

However, the current phase suggests a gradual shift. While growth remains an important driver, the ability to manage existing assets efficiently is becoming increasingly relevant.

This does not indicate a structural slowdown, but rather a transition toward a more operationally focused stage of development.

Going forward, the balance between expansion and efficiency—how effectively installed capacity is utilized—will likely become a key consideration in evaluating industry performance.