Shares of major Korean EV battery makers show robust growth

[Photo by MK DB]

Shares of LG Energy Solution Ltd. and other South Korea electric battery makers, which had been overshadowed by the rise of EcoPro BM and other cathode providers, are now climbing on expectations of higher earnings from their overseas expansions.

LG Energy Solution has surged by 33 percent since the start of this year, approaching its all-time high since its listing in January last year. SK on Inc. has also seen a 29 percent gain in its shares this year. Shares of SK innovation Co., SK on’s parent, are also up 29 percent this year. Samsung SDI Co. also experienced a 19 percent gain this year.

SK on is expected to turn profitable in the second quarter of this year as analysts predict that it will reflect subsidies from the U.S. Inflation Reduction Act (IRA) in its earnings. SK innovation, as a latecomer in the local battery business, rapidly increased its investment in the battery sector, while SK on recorded a loss of 1 trillion won ($768 million) last year. In the first quarter of this year, it reported an operating loss of 345 billion won.

However, analysts expect a turnaround in the second quarter.

“Some 670 billion won in the Advanced Manufacturing Production Tax Credit (AMPC) scheme under the IRA is expected to be the driving force behind the turnaround and the company’s profitability will improve compared to the first quarter of this year,” said Cho Hyun-ryul, an analyst at Samsung Securities Co.

If SK on’s profitability improves, the value of the battery business incorporated in SK innovation is expected to be reflected more significantly. The uncertainty of financing for future business, which had been a stumbling block for SK on, has also been partially resolved. On May 24, SK on secured 1.2 trillion won investments from MBK Consortium and SNB Capital. This partially alleviated concerns about the company’s financing target of 10 trillion won.

LG Energy Solution is approaching a new 52-week high. While the stocks of battery materials companies surged, the stocks of battery manufacturers continued a small but steady rise.

In the second quarter, LG Energy Solution is expected to achieve higher operating profit first quarter’s figure of 633 billion won.

“The AMPC benefits based on the IRA application for facility expansion are expected to increase from 700 billion won this year to 6.2 trillion won in 2026, more than eight times,” said Han Seung-jae, an analyst at DB Financial Investment. The difference in profitability compared to China’s Contemporary Amperex Technology Co. is also being reversed thanks to AMPC, he added.

Analysts expect LG Energy Solution to strengthen its control in the North American market. Demand for localization of the North American market supply chain has been increasing after the IRA implementation, and the existing investments in North American facilities are expected to serve as a stepping stone for additional investments in the future.

“Requests for establishing joint ventures in North America have increased, not only from finished car companies such as GM, Stellantis and Honda but also from other partners. Recent contract conditions show the Korean company’s stronger negotiating power compared to the past,” said Cho.