SK Innovation Co Ltd
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SK Innovation Co Ltd
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[Interpreted] Good morning. I'm [ Chung Soo Yung ], IR Project Leader at SK Innovation. Thank you for taking the time to join us today on the 2023 Q4 earnings call. Joining us on the call today are SK Innovation's CFO, Mr. [ Kim Jin Won ]; IR team head, Lee Woo-Hyun; and executives from each subsidiary.
The earnings call will commence with the presentation of the 2023 Q4 results by our CFO, followed by a Q&A session. Please note that today's presentation has yet to be reviewed by our external auditor, so the results are subject to change based on such review.
With that, let me invite Mr. [ Kim ] to make the presentation.
[Interpreted] Good morning. I am [ Kim Jin Won ], CFO of SK Innovation. I would like to thank our shareholders, investors and analysts for your continued interest in the company. Now let me outline the company's Q4 business highlights.
In 2023, SK On achieved a record high annual revenue of KRW 12.9 trillion, making a -- marking a 70% increase compared to the previous year. In Q4, we have seen an uptrend in profitability, propelled by improved productivity in our overseas subsidiaries, particularly in North America and the AMPC effect and cost-saving initiatives.
This year, the global EV demand is expected to experience a slight slowdown in growth in the short term due to factors such as inflation, high interest rates and subsidy cutbacks. However, the company is planning line adjustments to optimize the operation of existing facilities. Our primary focus remains on strengthening our fundamentals for both qualitative and quantitative growth.
Our order backlog at the end of 2023 amounted to more than KRW 400 trillion. This increase was fueled by the expansion of orders from both existing and new customers. In the slide, we expect our mid- to long-term utilization rate and profitability to increase.
Second, instead of paying out cash or in-kind dividend for the fiscal year 2023, the company has decided to fully retire 4,919,974 treasury shares within the balance of distributable profits. The decision is in line with the recent government policy to ease Korea discount and also the company's commitment to enhance shareholder value as pledged to shareholders through shareholder dialogue. The total shareholder return rate, including dividends and treasury stock retirement, was 319% in 2023, exceeding the previously announced dividend payout ratio of 30%. Going forward, we will continue our efforts to protect investor rights and enhance shareholder value through ongoing communication and engagement.
This is for SK's -- this is it for SK Innovation's 2023 Q4 business highlights. Next, I will present the company's 2023 Q4 results in detail.
2023 Q4 sales recorded KRW 19.529 trillion, down KRW 359.8 billion quarter-on-quarter. The EV business saw an increase in its sales volume as it commenced the operation of a new order block, but the decrease in sales volume due to a regular TA in the chemical business and the decline in battery sales due to the drop in metal prices weighed down on the quarterly sales.
Operating profit decreased by KRW 1.49 trillion quarter-on-quarter and recorded KRW 72.6 billion due to a decline in refining margins and inventory losses due to tumbling oil prices. Nonoperating profit improved by KRW 343.1 billion Q-o-Q, recording a loss of KRW 133.7 billion, backed by gains from commodity derivatives aimed at hedging oil price declines and increased FX-related gains following a depreciation in the exchange rate.
To elaborate, Q4 nonoperating profit is made up of asset-related gains of KRW 155.6 billion, product derivative gains of KRW 73.4 billion, equity method gains of KRW 33.4 billion and net interest expense of KRW 189 billion.
Next, let me go over the balance sheet. The 2023 year-end total assets posted KRW 80.783 trillion, up KRW 13.564 trillion year-on-year. This was attributable to the expansion of tangible and intangible assets resulting from the new overseas battery plan investments and the increase in cash from a robust operating cash flow. Liabilities recorded KRW 50.759 trillion, up KRW 6.782 trillion versus the end of the previous year due to increased borrowings for expanded investments.
The debt-to-equity ratio, however, dropped 20 percentage points and recorded 169% versus the end of the previous year, bolstered by solid profits and capital increase from the rights offering in 2023. Meanwhile, net debt came in at KRW 15.566 trillion, up KRW 1.05 trillion versus the end of the previous year despite a sound OCF and cash raised through the rights offering due to CapEx for overseas battery capacity expansion.
Next, let me dive into the Q4 performance of each business. First is the refining business. The refining business recorded an operating loss of KRW 165.2 billion, down KRW 1.2777 trillion Q-o-Q due to the weakness in refining margins, inventory-related losses resulting from the decline in oil prices and others.
In the first quarter of 2024, there are concerns about the Fed reserve's continued tight monitoring policy and potential demand contraction. However, refining margins are expected to strengthen due to the possibility of additional OPEC+ cuts amid ongoing geopolitical uncertainties and China's stimulus measures and an anticipated uptick in mobility demand with the arrival of the Spring Festival holiday. Already in January 2024, refining margins are demonstrating a bullish trend. Furthermore, the recent cut in Saudi Arabia's OSP, additional improvement in the refining margins as anticipated.
Let me move on to the petrochemical business. The petrochemical business saw its margin narrow due to reduced product spreads, inventory losses stemming from a fall in naphtha prices compared to the end of Q3 and decreased volumes from NEP and polymer TA. Consequently, operating profit dropped KRW 236.6 billion compared to the previous quarter and recorded KRW 400 million.
Next is 2024 market outlook for key products. For PE and PP, we anticipate that the spreads will hold steady, driven by improved demand stimulated by the Chinese government's efforts to boost domestic consumption. For PX, the outlook suggests a gradual improvement in spread supported by strong downstream demand backed by sustained high run rates in the Chinese polymer chain -- polyester chain, rather, and PTA expansion and the anticipated recovery in gasoline blending demand.
Next is lubricants. The lubricant business maintained a steady demand despite the off-season, but the decline in oil prices and its impact on inventory pushed down the operating profit by KRW 44.7 billion quarter-on-quarter to KRW 217 billion. In 2024, tighter environmental regulations are expected to drive up demand, particularly for premium lubricant-based oil and a positive market outlook is expected to be sustained. Especially as the winter off-season draws to a close, we foresee a gradual improvement in spreads.
Next is E&P business performance in Q4. The E&P business, despite the decline in oil prices, saw an increase in sales volume with the initiation of operations in the South China Sea Block 17/03, where successful oil production was announced during the Q3 earnings call. As a result, operating profit jumped KRW 27.7 billion Q-o-Q, reaching KRW 107.1 billion.
In the first half of 2024, we anticipate both our top line and bottom line growth, propelled by the substantial increase in oil production from the new Chinese block I mentioned earlier. Furthermore, we are directing our company-wide efforts towards the successful development production in additional blocks under exploration in Vietnam, Malaysia and other regions, ensuring uninterrupted progress.
Next, let me move on to the battery business and its performance in Q4. In Q4, the battery business exhibited a decrease in revenue totaling KRW 2.7231 trillion, down to KRW 449.6 billion compared to the previous quarter due to a decline in sales prices caused by the drop in metal prices. [indiscernible] further improved and recorded minus KRW 18.6 billion, backed by enhanced productivity in North America and expanded AMPC effect of KRW 240.1 billion.
Despite the ongoing sluggish EV demand and other [indiscernible] business conditions in 2024, it is expected that the shipment volume will continue to rise, thanks to the operation of new plants. In the first half of the year, we may witness a transient stagnation in profitability attributed to the initial ramp-up of new capacities in China and Hungary alongside a decrease in battery ASP. However, we anticipate a sharp upswing in profitability from the latter half of the year onwards buoyed by stabilized yields and battery prices.
Next is SKIET. SKIET saw an increase in operating profit by KRW 8.1 billion Q-o-Q despite recording similar sales volumes. This was attributed to cost reduction initiatives, including production costs, and the recognition of the incentives received by the Chinese entity. In 2024, despite uncertain demand outlook in the downstream industries, we remain committed to strengthening our mid- to long-term competitiveness through diversifying our customer portfolio.
Finally, I would like to express my gratitude once again to our shareholders, investors and analysts for your continued support. I kindly ask for your ongoing interest and support throughout the year. Thank you.
[Interpreted] This is the end of our presentation. We will now start the Q&A session. Also, please note that the Q&A session will be conducted with consecutive interpretation. Before we open up the floor, we would like to provide answers to some other questions we've collected via our website in advance. For your information, we've invited questions via our website for 2 weeks leading up to today's earnings call. We will begin by addressing 2 questions that have garnered considerable interest.
So the first question that we will be addressing would be SK On's 2024 revenue and also profitability guidance. The answer for this will be given by SK On.
[Interpreted] So yes, this is the CFO of SK On, Kyung-hoon, and maybe I can address the first question, which is a question in which a lot of the investors and analysts are interested in, it would be our 2024 revenue and profitability guidance. If we look at global EV demand in the short term, we do believe that there will be a slight decrease in the overall growth rate. However, over the mid- to long term, due to the various environment-related policies and fuel efficiency regulations, in addition to that, the OEMs in terms of their EV lineup are increasing and expanding their lineup and charging infrastructure continues to expand, so we do believe that there will be continuous growth within the market.
So if we look at the market forecasting organizations and look at their overall outlook for the future, for passenger EV battery market, they are expecting a CAGR of around 20% plus for the future. So as a result of that, in 2030, the overall market size is expected to achieve around 2.3 to 3.9 terawatt hours.
If we look at the backdrop behind this very rapid growth, it would be that for each of the different countries, there are carbon reduction policies and support that is being provided. On the OEM side, there is the electrification strategies that are being implemented, and also from consumers, there is a preference for EV vehicles that exist. So based upon this overall long-term growth trajectory, we will, going forward, continue to enhance our revenue and also profitability.
So if we look at 2024 and if we look at the overall business environment in which we are placed, due to various macroeconomic situations, we do believe that there are uncertainties that are still looming. However, for the full year, in terms of our overall sales volume, we do think that we will be able to continue the growth that we have been able to see.
During the first half of the year, we do expect that overall shipment volumes may decline. However, in light of the situation, we are appropriately adjusting our production levels. And in terms of profitability, there will continue to be the lagging effect from the drop of metal prices and also a depletion in inventory that will be taking place. So as a result of that, we do believe that profitability may slightly weaken during this period of time.
However, during the second half of the year, we do think that the overall shipment volume will increase as inventory is depleted during the first half of the year. In addition to that, as metal prices are expected to maintain a low level, that will drive battery prices lower. And there are also expectations that the benchmark interest rate will be cut, which would lead to a lower interest pricing for auto loans. In addition to that, the EV new vehicle lineup will increase and expand.
So as a result of these various factors, we do believe that our overall shipment volume should recover, and that should lead to better performance. As a result of that, during the second half of the year, we do think that the top line will increase and that there will be improvements on the cost side, which will enable us to enjoy a better standing in terms of our profitability. And as this takes place, we do think that the overall target for the second half of the year would be an operating profit breakeven.
And with this, I would like to complete my answer to the first question that was pre-submitted. Thank you.
[Interpreted] And now we will move on to the second question that was pre-submitted, which is the 2024 CapEx guidance for SK Innovation. For this question, we will have the CFO, [ Kim Jin Won ], address the question.
[Interpreted] Yes. Maybe while addressing the question about what the overall CapEx guidance for 2024 will be, I will also discuss the overall financial profile of the company.
First, in light of the overall macroeconomic uncertainties that are concurrently looming, we will continue to monitor the market backdrop and be able to make sure that we have a flexible stance towards the way that we execute our CapEx. As a result of that, for the overall investment policy, we do want to maintain prudent. So for this year, in terms of the overall plans that we have, right now, based upon the overall projects that have already been confirmed, we expect CapEx for the full year to be at around KRW 9 trillion. And after this investment has been completed, from 2025 and thereafter, we do believe that CapEx will significantly decrease.
So if we break this down -- this CapEx down by business area, first, for the battery business, this would account for a large portion of the overall CapEx. And in order to further solidify our long-term competitiveness in this area, we will be investing in new capacity. And as a result of that, the overall CapEx for the battery business would be around KRW 7.5 trillion. If we look at the CapEx for the non-battery side of the business, we do think that it will be flat versus last year. So if we take into consideration the maintenance CapEx and also strategic CapEx or investments in total, we think that, that will represent around KRW 1.5 trillion.
So in more detail, if we look at the battery business, the bulk of the CapEx will be looking and be related to the North American capacity additions that we have, which is a very strategic and key market for us, and also related to the confirmed JVs that we have with Ford and also the JV with Hyundai Motor Company. So of the overall CapEx that we have related to Ford, right now, in terms of financing that we are looking at getting a loan -- a low-cost policy loan from the U.S. Department of Energy. So that process is going smoothly right now. And in the case of the JV with HMC, if we look at how we are going to finance that, it would be through the partnering equity investment that would be reflecting the ownership of each party into the JV, and we do think that, that will account for a significant portion of the financing required.
So in line with the CapEx, if we talk a bit about our overall financial position. First, during the past 2 years, we did have increasing investments or CapEx related to the battery business. And as this investment was concentrated there, overall CapEx did increase. And as a result of that, our financial position has somewhat weakened. However, after the initial investments have been taking place, we do see a realization of the EBITDA generation from these investments. And as a result of that, we do think that some of the financial burden should be addressed over time. In addition to that, 2024 for us will be a year in which we will be focusing on executing our portfolio transition. So at the same time, we are going to look at various options available to us from multiple angles to be able to enhance our overall firm value and also secure our financial soundness.
And so as you are probably aware, in 2023, we did have the rights offering of SK Innovation and also a successful pre-IPO investment on the side of SK On. So as a result of these various efforts that we have been made, that was -- in addition to that, from our existing businesses, there was the fall in oil prices and continuous efforts that we had included to improve our working capital. So all of this in total has resulted in an improvement in our operating cash flow. As of the end of 2023, our net debt stood at KRW 15.6 trillion, and we were able to increase -- keep the increase of our net debt level to KRW 1.1 trillion on a Y-o-Y basis. In 2024, we expect that the profitability of the battery business, including the AMPC benefits, to improve. And as a result, since that will be meaningful, we should be able to provide a profit level that can comfortably service the increase in our overall net debt.
In addition, if we look at our global credit ratings on the S&P side, right now, S&P has rated us at a BBB- negative, which is, of course, investment grade. And in the case of Moody's, they have actually changed our outlook on the credit rating from a Ba3 negative to stable. And we do believe that these credit ratings and outlook changes reflect the overall views that the credit rating agencies have on the company's efforts to improve our financial position.
Since COVID has taken place and in the pre-COVID situation, we do see on the macroeconomic backdrop, there are still uncertainties that are looming. So at the BOD level and at the senior management level of the company, of course, we do believe that it is very important for us to have a very sound financial position to be able to support continuous growth at the company's level. So we do think that this is not only essential but also a must. So from that standpoint, going forward, we will continue to put our best efforts against securing that financial soundness and also maintaining our investment-grade rating from the global credit rating agencies.
With this, I would like to end my answer. Thank you.
[Interpreted] The first question will be provided by [ Young-joo Song ] from KB Securities.
[Interpreted] The questions that I would like to ask you is related to your refining business and also your lubricants business. First, with regards to the refining business, if we look at 2024 and the overall supply situation and demand situation, where do you actually see demand being -- growing within the market? And in terms of the overall supply situation, how much supply or capacity do you think will be closing down and be adding on? In terms of product growth, if you can specify which products you actually believe that will be growth -- will be growing, that would also be appreciated.
The second question that I would like to ask you is about your lubricant base oil business. If you look at China right now, there is conversion of capacity to Group II and Group III lubricants. And in addition to that, I understand that in India also, there are lubricant base oil capacity that they are utilizing to produce the product. In addition to that, on the EV side, as more EVs are being adopted, do you actually see in your numbers that there is a decline in the overall amount of lubricants that are being used?
[Interpreted] Yes, maybe I can take your question -- first question. This is the Head of the Corporate Planning Office at SK Energy. So maybe to address the overall question that you had about 2024 in terms of the demand increase and where there would be capacity additions. First, to talk about overall product demand. I do think that in China and also India in which we actually believe demand will be strong, that there will be an increase of around 1.5 million barrels per day on a Y-o-Y basis.
If we look at the supply side of the dynamics, we do think that in terms of the global net additions, that there will be less than last year in terms of the overall size. And we do think that the net additions this year will represent approximately 660,000 barrels per day. However, if you look at where that is coming from, rather than within the region, we think that there will be a larger portion coming outside of the region. So if we look at the impact within the region that we are placed in, we do think that, that will be somewhat limited.
In addition to that, if we compare the overall net additions to the overall increase in demand that we see, we do think that demand growth will be stronger. And as a result of that, we think that, that will lead to our dynamics in which supply is tight and that there will be a lack of overall supply.
In addition to that, to talk about the refining facilities, our capacity that's available, overall refining prices will increase as there are more payments that need to be made for carbon emissions trading facilities or CREs. And in addition to that, there is also a lot of the refining capacity that is becoming very old. So we do think that there will be limitations in the overall operations as a result of that, again, leading to a very tight supply situation versus last year.
To address your question about what products we see growth taking place in. In 2024, we do think that there will be an increase in the recovery and overall travel demand coming from China and also Southeast Asia. So we do think that jet oil, as a result of that, will increase and grow. And in addition to that, because there is various inflation or because there is various economic stimulation measures that are being announced in the Asian region and also China specifically, we do think that, that will lead to infrastructure development, which should trigger [ broad ] demand for diesel. So we do think that the overall market for these products will improve.
[Interpreted] So this is [ Kim Seokwon ] from the lubricants side of the business, and maybe I could address your second question. So as you have mentioned in China and also India right now, there are new capacity addition plans that have been announced for Group III base oil. However, I think that from 2 perspectives, that this needs to considered. First is that in terms of the overall stable production possibility, in order to achieve that, there is time that is necessary and needed. So that is one factor. And the second is that in order to actually service the major clients, there needs to be a certification in the overall mix of the products that is provided. So as a result of that -- the product formula that goes into the product -- the formula that goes into the product. So as a result of that, we do think that for those reasons, the possibility of this actually being a real threat to us is not very large.
And maybe also to address your second question about the EV situation and how demand is taking place as a result of that. As the EV market does grow, of course, we do understand that there are concerns that, that may lead to a decrease in overall lubricants demand. However, if you look at our main product, it is based -- or lubricants that is Group III or higher, and as a result of that, these are premium products that can satisfy the overall enhanced fuel efficiency regulations that are in place from an environmental regulation standpoint. So as a result of that, this is an area in which demand continues to grow. So if we just look at the Group III market, we do think that this level of demand will be something that would be valid for the time being.
[Interpreted] The following question will be presented by Hyunryul Cho from Samsung Securities.
[Interpreted] I would like to ask questions about your E&P business and also battery business. First, about your E&P business. The overall production that you have seen from the China 17/03 block is now being reflected into your overall performance. So if we look at the actual contribution during the fourth quarter, how much was that? And in terms of the expectations going forward in terms of the contribution for the overall profit, how much do you expect that to be going forward?
The second question that I would like to ask you is about your battery business. In the presentation material and also during the conference call, you have mentioned that because of the new capacity that would be going online during the first half of the year, you do believe that, that will dampen some of your profitability. So if we look at the European capacity that will be added in the first half and the China capacity that would be added in the second half, how much time do you think it will take for that capacity to actually reach the yield level that you want to achieve? And if you compare that to your experience in the past for your European or U.S. factories, how much time do you actually believe you can save?
[Interpreted] So maybe I can address your first question. From SK Earthon, this is [ Kim Ki Hyun ]. So if we look at the actual contribution that was made in the fourth quarter from the China 17/03 block, out of the overall production blocks that we have, it accounted for around 20%. So for this China 17/03 block, it actually started production in September of 2023. And we do currently have 13 production wells that are currently being planned to be drilled. So as of the end of last year, from the 5 wells that we have in production right now, there was around 20,000 barrels that we were able to produce.
In addition, together with the overall productions that we have in operations, in addition to that, there will continue to be drilling taking place for additional production wells. And so by July of this year, the overall target is to complete the drilling of a total of 13 production wells. So if we are able to achieve this, we do expect that the overall production volume on a per day basis will reach 30,000 barrels. And as a result of that, we do believe that the overall contribution from this asset will continue to increase.
In addition, if we look at the expected production for 2024 as a whole, this would be based upon the crude amount around 100 million barrels. And if we apply the current level of crude prices to this volume, that would be in terms of profits around KRW 1,250 billion of profits for the company. So if the overall production volume increases or if there is an uplift in the overall coal price, we do think that there will be additional upside that we would be able to enjoy.
So from the China 17/03 block, by 2033, we do think that the overall production of crude oil will be able to total 46 million barrels. So at the beginning of this year, in order to secure additional reserves, we did start and are drilling additional pilot wells. So we currently are looking at the results. And according to those results, we do think that there could be an increase in the overall reserves that can be drilled.
[Interpreted] So this [ Park Jung-ha ] from SK On, and maybe I can address your second question, which was related to the battery business. So in the case of the Hungary and China capacity in which we are planning to expand and add on this year, because the sites are actually located very close to existing capacity, which enjoys high yield levels, we do think that we will be able to achieve a very early stabilization in the yield.
In particular, we are also planning to send a core team, which would represent the talent on the production side and also in terms of manufacturing experience that was enjoyed at other sites and focus them in this location so that we can actually have a very structured ramp-up.
In addition, we are planning to adopt and expand a real-time production monitoring system and put it in place so that we can early on detect any issues that cannot be prevented in advance so that we can take very quick follow-up measures.
So through these efforts, we do believe that versus the existing plant that we have, we will be able to shorten the ramp-up period by around 2 months. And we are planning and we do expect that the overall ramp-up period will be accelerated to be able to achieve a very stable yield level.
[Interpreted] The following question will be presented by [ Pan Kun ] Park from CGSI Securities.
[Interpreted] This is CNBC -- sorry, CIMB, and maybe I can take and ask 2 questions for you. The first question that I would like to actually ask you would be related to the battery business. So right now, there is confirmation about what the FEOC-related regulations are. And if we look at the overall demand for EVs and the market backdrop, do you believe that the current situation requires that you make changes to your overall supply value chain that you have right now? And if so, what type of changes do you believe would be possible?
The second question that I would like to ask you is about additional orders that you may be able to win this year. How much do you believe that, that would represent in terms of size? And if you look at the overall industry, I do think that there is an increasing appetite for overall -- a wider variety of form factors and also demand coming from that. So if you could share your technology development road map, that would be appreciated.
[Interpreted] So this is the Head of IR at SK On, [ Park Jung-ha ], and maybe I can take your first question. On December 1, 2023, there was a definition about what the FEOC-related regulations would be. And as a result of that, we do think that, that has cleared up some of the business and also investment-related uncertainties that had prevailed. However, from the initial stages of our investments and also making inroads into the North American market, we did try to localize our overall key parts value chain. And as a result of that, we also reviewed the possibility of making direct and indirect investments.
So to give you a bit more detail, we have been trying to decrease the overall dependency on FEOC-related supply that we have within our overall North American production and supply chain. So that means that we are trying to adjust some of the ownership that we have with some of the FEOC-related partners. We are diversifying the sourcing that we have for our raw material and parts and also considering various changes in our production locations for intermediate goods. So as a result of that, we do think that we would be able to continuously build out the supply chain that we need to be competitive in the North American market and also secure the business profitability that we want to enjoy.
So maybe to elaborate a bit more in detail. With regards to the core metals and materials that we are requiring right now in the case of lithium, right now, we're trying to secure the demand to service our OEM customers from Chile and also Australia. And in the case of nickel and cobalt, right now, we are looking at the possibility of relocating our production facilities in the case of the cathodes that are being used so that they can be IRA-compliant. And lastly, in the case of the precursors that are required right now, we're trying to decrease the dependency on China, 2 of those outside of China, also looking at recycling possibilities and explore other options available.
Maybe to talk about also on the overall order book that we have. So in terms of our order book as of the end of 2023, it stands at KRW 400 trillion, which is an increase of KRW 110 trillion versus the end of 2020. So in the case of our situation right now, we are trying to solidify our overall relationship with existing customers such as HMG and also HMC and Ford, and at the same time, continuously try to win orders from new product -- projects that are ongoing and other global OEMs.
So with our existing customers, right now, there are ongoing discussions that we have in increasing volume, and there are also other discussions that are taking place with potential new customers. So if this does realize, we do believe that the overall order book will grow going forward. And though it is difficult to delve into details, right now, we are engaging in various discussions to try to strengthen our cooperation with existing customers and also try to realize additional orders. And once more details are available, we will make sure to share that with you.
And maybe I can talk about our last question, which was with regards to the typical road map for the future. So not only are we focusing on the high-end side of technology, but we are also focusing on the various changes that are taking place in our main NCM form factor, which would be the less technical [indiscernible] areas or also in terms of [ LCE ] batteries and also cylindrical batteries. So we want to be preemptive in terms of what we are doing and try to be flexibly able to cater to the market.
So in the case of cylindrical batteries, to ensure that we can cater to the various demand that customers currently have, we do have a team of very experienced researchers in this area, and we're focusing our efforts on the [ 4 6 ] series cylindrical batteries. So in the case of when we would actually be able to mass produce, what type of form this battery type would actually take and also the investments related to this, this is something that we will be determining based upon the customer needs and demand that we see. And that would be the overall approach going forward. Thank you very much.
[Interpreted] The last question will be presented by Yu-Jin Jeon from HI Investment & Securities.
[Interpreted] I do have just one question that I would like to ask about SK On. And it is that right now, in light of the fact that overall EV demand is weakening, you do have plans to open capacity this year in Hungary and in Yancheng and for next year in the U.S. With regards to these plans, are there any delays or changes that we might expect?
[Interpreted] Yes, this is the CFO of SK On, Kyung-hoon, and maybe I can address your last question. So by the end of this year, we are planning to complete the capacity additions that we have planned in Yancheng and China and also the [ OH2 ] factory in Hungary. And for any other capacity additions, this would represent the JV factories that we would have in the U.S. with our OEM partners.
So in the case of BOSK, which we are pursuing together with Ford and also the JV in North America with HMC and the #3 unit or building in [ Tucson ], most of the CapEx would actually be executed across this year and also it was last year also. So as a result of that, if we look at the overall CapEx requirements for the future, we do think that this is something that will gradually decline.
So in the case of the Ford JV BOSK for [ KY1 ] and also the Tennessee factory right now, according to the CapEx plan that we had, CapEx is being executed as planned. And right now, for the overall target for SOP that we have planned, that is going ahead smoothly.
So in the case of the third factory, which would be the second Kentucky factory, in light of the overall customer demand and also the market situation, we have discussed maybe delaying some of the investment with our JV partner. And right now, it would depend upon the overall SOP target that we would agree upon.
Going forward, we will continue to monitor the market backdrop and also our customer demand so that in terms of CapEx that is necessary for the timing, we do want to be flexible and also be accommodating according to such situations. So by doing this, we want to enhance the overall asset allocation efficiencies that we have and make sure that we can optimize our financial soundness and also profitability. Thank you very much.
[Interpreted] So thank you very much. With this, we would like to wrap up our Q&A session and also the call that we have for the fourth quarter 2023 earnings. For all of you who have participated in today's call, thank you once again.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]