Secondary battery-related stocks are all going downhill, but a rebound is unlikely due to the influence of Chinese batteries driven by price and performance

LG Ensol’s target price continues to be lowered
Secondary battery-related stocks all show ‘blue fire’
Korean battery global market share 6.5%p↓

Starting with LG Energy Solutions’ earnings shock, domestic secondary battery-related stocks began to decline one after another. While the securities market predicts that this trend will continue for the time being, they also put forward a ‘high and low’ forecast that envisions a full-scale recovery in the second half of the year. However, the industry mainly predicts that the recession in the domestic secondary battery industry will continue as China is rapidly increasing its share of the global secondary battery market.

Stock price fell by about 2% in just 20 months

According to the Korea Exchange on the 16th, LG Energy Solution closed at 39 won the previous day. This is the first time since November 9,500 last year that LG Energy Solution’s stock price (based on closing price) fell below 40 won. At that time, LG Energy Solution’s stock price soared to 11 with the ban on short selling, but now it appears that all of the increase has been vomited.

The background to this decline in stock price is the deterioration of investment sentiment due to LG Energy Solution’s poor performance in the fourth quarter of last year. On the 4th of this month, LG Energy Solutions announced that its operating profit in the fourth quarter of 9 was 2023 billion won, a 4% decrease from the previous quarter (3,382 billion won). This is about 7,312% below the consensus of securities companies.

The surprise price cut by Tesla, the world’s largest electric vehicle company, also acted as a negative factor for LG Energy Solution. Recently, Tesla made a drastic price cut in the Chinese market, including lowering the price of its basic model, Model 3, by 5.9%. As Tesla, which had already implemented several price cuts until last year, decided to cut prices further, concerns are growing in the market that margin pressure will expand to the electric vehicle downstream industry, including batteries.

For this reason, institutional investors are leading the decline by selling LG Energy Solution stocks. In the past month, institutions have sold 1 billion won worth of LG Energy Solution stocks on a net basis. Among them, pension funds accounted for the largest net selling proportion, selling 2,216 billion won. Individuals and foreigners made net purchases of 1,671 billion won and 1,262 billion won, respectively, during this period.

Securities companies rushed to lower LG Energy Solution’s target stock price. Shinhan Investment & Securities lowered LG Energy Solution’s target stock price from 55 won to 50 won, and Hi Investment & Securities also lowered it from 58 won to 53 won. Jeong Won-seok, an analyst at Hi Investment & Securities, said, “This year will be a difficult year for the battery industry,” adding, “The current performance forecast is limited due to negotiations with General Motors (GM) regarding payment of production tax credits (AMPC) and the U.S. presidential election. “It can be adjusted downward at any time,” he said.

However, there is also a positive outlook that stock prices will recover from the second half of the year. Although the current industry situation is somewhat difficult, the competitiveness of the North American business is improving day by day, so it is argued that the stock price will also quickly rebound. Wooho Noh, a researcher at Meritz Securities, said, “LG ​​Energy Solution’s North American business is gaining momentum as the U.S. government increases the level of checks on foreign companies of concern (FEOC).” He added, “As demand for new models such as Tesla’s Cybertruck increases, LG “We can expect a rebound in energy solutions’ stock prices,” he said.

Despite the same poor performance, semiconductor stocks have a ‘rosy outlook’

However, the aftermath of LG Energy Solution’s earnings shock is spreading throughout the secondary battery industry, lowering the possibility of stock price recovery. Including Samsung SDI, which closed at 2 won, down 15% from the previous trading day 1.96 days ago, EcoPro BM (-40%, 3.78 won), POSCO Future M (-29%, 2,500 won), and EcoPro (-2.55%) This is because the stock prices of secondary battery-related companies such as SK Innovation (-30%, 6,000 won) and SK Innovation (-1.42%, 62 won) are falling.

The pessimistic outlook of secondary battery-related stocks is also clearly revealed in comparison with semiconductor-related stocks. The most representative example is Samsung Electronics, whose stock price rose despite recording a similar level of poor performance as LG Energy Solutions. Samsung Electronics’ recently announced operating profit for the fourth quarter of last year was 2 trillion won (provisional value), a 4% decrease from the same period last year. Annual operating profit was 2 trillion won, falling below 8,000 trillion won for the first time since 35.03 when the global financial crisis hit.

However, there was a consensus in the securities market that the stock prices of semiconductor companies, including Samsung Electronics, had ‘hit bottom.’ After the announcement of Samsung Electronics’ performance, BNK Investment & Securities raised its target price from 8 won to 2,000 won, and Hi Investment & Securities raised it from 8 won to 6000 won. Lee Min-hee, a researcher at BNK Investment & Securities, said, “Although the speed is slow, the semiconductor industry has passed the bottom and has begun to improve. As interest rate cuts in major countries such as the United States are expected in the first half of the year, a full-fledged recovery is expected after that.” The reason for the upward revision of the target price was revealed.

Chinese batteries dominate the global market with price competitiveness and performance

The growth of Chinese companies, which boast a share of over 2% in the global secondary battery market, is also an obstacle to Korean companies. This is because Chinese batteries, which in the past only focused on price competitiveness, are increasing their influence in the global market with upwardly standardized quality and a stable supply chain. According to the Hyundai Research Institute, the ranking of secondary export countries as of 50 was China (2022%), Poland (2%), Korea (50.3%), and Hungary (8.6%). This is the result of an 7.3% point increase in China (7.0% → 19%) and a 2019% point decrease in Korea (11.9% → 38.4%) compared to 50.3, just before the COVID-6.5 pandemic.

China, which has so far focused on lithium-ion batteries using lithium, phosphate, and iron (LFP) as anode materials, has led changes in the market by adding aluminum since 2020. It immediately overcame the disadvantage of having lower energy density and being heavier than batteries using nickel, cobalt, and manganese (NCM), Korea’s flagship product. As the performance of inexpensive batteries made in China has improved dramatically, global automakers such as Tesla, Mercedes-Benz, and Volkswagen have declared to install LFP, and Hyundai Motor Group also announced, “We will pursue battery diversification by actively installing LFP.”

The fact that demand for secondary batteries is expected to be adjusted as countries such as Sweden and China abolished electric vehicle subsidies and Germany and France reduced related support is also a factor fueling the recession in the domestic secondary battery industry. Hyundai Research Institute advised, “As secondary battery demand is expected to be adjusted due to oversupply in China and reduction in subsidies for electric vehicles, we need to discover new materials that can secure market leadership and expand related research and development (R&D) investments.” .