Revenue Fell 26%, but Profit Fell 63%

It is the story of the same company, in the same quarter.

Revenue fell by more than a quarter, but profit declined at more than twice that rate.

This often happens on the income statements of battery-materials companies.

3-line summary
1. EcoPro makes materials, not batteries.
2. When second-quarter revenue fell 26%, profit fell 63%.
3. Materials companies’ results fluctuate with mineral prices.

What does the company make?

EcoPro is a holding company that owns affiliates rather than directly operating the businesses. It spun off its cathode-materials business to create EcoPro BM in 2016, and took its air-environment business public as EcoPro HN in 2021, creating its current structure.

To see what it makes, you first need to open up a battery. In a lithium-ion battery, lithium moves between the cathode and anode during charging and discharging. The material on the cathode side is cathode material, which is considered the largest component of battery costs. EcoPro BM handles this part.

Precursors are the preceding stage. They are intermediate materials made by chemically mixing metals such as nickel, cobalt, and manganese; they must be combined with lithium to become cathode materials. EcoPro Materials performs this work at Yeongil Bay in Pohang and, according to CBC News reporting, has annual production capacity of 5만 tons.

In short, in the sequence of minerals → precursors → cathode materials → batteries → electric vehicles, the group occupies the two middle stages. It makes neither batteries nor electric vehicles.

Revenue moves with mineral prices

This is the key to understanding the industry.

Since 2018, battery makers have used a method called a selling-price linkage system. Under these contracts, changes in raw-material mineral prices are reflected in cathode-material selling prices. It is designed to prevent materials companies from bearing mineral-price spikes alone.

But there is a lag in the adjustment. According to reports, it is generally applied two to three months later. When mineral prices rise, this is beneficial: companies sell products made with cheaply purchased materials at higher prices.

In numerical terms, this is how it works. A company buys materials at prices from three months earlier and stores them in inventory, then sells cathode materials made from them at prices reflecting today’s market. If market prices at the two points are the same, nothing happens.

When prices fall, the opposite occurs. Products made with expensive materials already purchased must be sold cheaply. The industry calls this reverse lagging. This is why cathode-material companies’ profitability deteriorated particularly sharply during periods of falling lithium prices.

5,767억 and 180억

According to CBC News reporting, EcoPro BM’s consolidated revenue for the second quarter of this year was 5,767억 won (억 = 100 million), down 26% from a year earlier, while operating profit was 180억 won (억 = 100 million), down 63.2%.

The most notable part of these results is the gap between those two figures. Profit fell by far more than revenue did.

Factories keep running even when volume declines. Equipment depreciation and labor costs are incurred regardless of sales volume, and when the reverse-lagging effect described above is added, profit is reduced faster than revenue. The fact that it remained profitable is, if anything, notable.

Growth outside electric vehicles

Not all output goes to electric vehicles. In the same report, cathode-material volume for so-called power applications, such as power tools and electric bicycles, increased 28% from the previous quarter.

This segment helped hold up results while electric-vehicle volume in Europe and North America declined. However, its scale is very different from that of electric vehicles, so it would be misleading to read one as replacing the other.

Why it is moving downstream toward mines

The group’s expansion into nickel refining and smelting stands out. According to CBC News, it is proceeding with an investment in an Indonesian smelter and is targeting operation in the second quarter of 2027. In Europe, it is pursuing mass production at a Hungarian plant.

Moving into earlier stages allows it to procure raw materials with less exposure to others’ market prices. Local production in Europe reduces issues related to tariffs and local-procurement requirements. Neither is meant to change current results; they are investments intended to alter the cost structure several years from now.

What to watch next

Looking at revenue and profit separately can be confusing. Because revenue substantially reflects mineral prices, a revenue decline alone does not prove that volume has fallen. You need to separate shipment volume from selling prices to see the direction.

The downstream market also needs to be considered. The cathode materials made by this company go to battery companies, and those batteries go into electric vehicles or energy storage systems. If orders decline two stages downstream, that decline reaches this company after a lag. Conversely, recovery arrives just as late.

And plans are plans. Items with dates attached, such as the target date for smelter operations or the start of mass production at the Hungarian plant, should be verified based on whether they actually occurred at those times.

A materials company’s results are not determined by its own capabilities alone. Mineral prices and downstream demand are layered on top.

That is why it is difficult to judge a company based on one quarter’s figures. This article explains the business structure and is not intended for investment decisions. Decisions regarding individual stocks require confirmation from an expert.