[Weekend Money] When Will Battery Stocks Rebound... Focus on U.S. ESS and European EVs

"Earnings Concerns and Valuation Pressure Already Priced In"

U.S. AI Data Center-Driven BESS Demand Expansion

Clear Recovery in European EV and ESS Markets

Can secondary battery stocks, which have been weighed down by sluggish demand for electric vehicles (EVs), rebound? According to analysts in the securities industry, the key to a rebound lies not in EVs, but in the U.S. energy storage system (ESS) market. With the rapid expansion of artificial intelligence (AI) data centers intensifying grid bottlenecks, battery-based ESS is emerging as a new growth driver that could compensate for the downturn in the EV sector.

ESS Becomes the Main Growth Axis Amid the EV Chasm

Recently, Anna Lee, a researcher at Yuanta Securities, stated, "The U.S. ESS market is emerging as an independent growth driver, not just a supplement to the slowdown in EVs, as various factors such as AI data centers, transmission grid bottlenecks, the combination of solar power and battery-based ESS, and a shortage of gas turbine supply come together."

Until now, the secondary battery sector has been in a chasm—a temporary stagnation in demand—due to the global slowdown in electric vehicle sales. The outlook for a strong recovery in U.S. EV demand also remains weak for the time being, due to factors such as the conclusion of subsidies, high automobile financing costs, and the increased supply of used electric vehicles.

Battery-based ESS has emerged as the new breakthrough. The need for ESS across the entire U.S. power infrastructure is increasing as the expansion of AI data centers, reshoring of manufacturing, cooling demand, electrification, and the spread of renewable energy all progress simultaneously. Although ESS is not a power generation source itself, it is recognized as a fast-charging solution that lowers power peaks, reduces grid connection burdens, and accelerates the timing of commercial operation for projects.

Focus on Non-Chinese Supply Chains and Safety-Certified Companies

Globally, the supply of lithium iron phosphate (LFP) cells is abundant, but supply chains for locally-produced non-Chinese products that meet U.S. policy requirements could actually become scarce. The strengthening of ESS safety regulations is also an opportunity for Korean companies. As large-scale fire testing and permitting response capabilities become more important, simply procuring low-cost cells and assembling them is no longer sufficient to win project orders.

The recovery of electric vehicle demand in the European market is also seen as a positive factor. Due to high fuel taxes, the high share of urban driving, the small car market, policies promoting the electrification of corporate vehicles, and the launch of affordable EVs, conditions for the recovery of EV demand are seen as relatively favorable.

There is also discussion of the structural growth potential of the European ESS market. As the share of solar and wind power increases, issues such as falling electricity prices during daylight hours and power shortages during the evening peak are inevitable. The increase in cumulative solar installations and the occurrence of negative electricity prices are factors that drive demand for utility-scale ESS.

"Cell Manufacturer-Centric Approach... Selective Response for Material Stocks"

From an investment strategy perspective, the advice is to focus on battery cell manufacturers with strong earnings improvement prospects and U.S. ESS order momentum. Lee recommends an "overweight" rating on the secondary battery sector and selects LG Energy Solution and Samsung SDI as her top picks. She set target prices at 574,000 won and 913,000 won, respectively.

For material stocks, a selective approach is required. Lee highlighted that for L&F, attention should be paid to Tesla demand and LFP cathode material supply momentum, and for Ecopro BM, the European policy premium and potential for customer diversification are noteworthy. However, she pointed out that material companies may experience greater stock price volatility compared to cell manufacturers, so a trading-oriented approach is necessary.

The key issue is how quickly local plants can achieve stable yield rates. Lee added, "Initial local plants outside of China have low utilization rates, a lack of skilled personnel, and high energy and financing costs in Europe and the United States. It should be noted that the point at which the cost gap with China actually narrows may come much later than next year."

This content was produced with the assistance of AI translation services.