Next year, the sales of electric vehicles are expected to increase by up to 41% compared to this year. With this in mind, LG Energy Solution raised its target stock price from 300,000 won to 550,000 won, and LG Chem increased its target stock price from 350,000 won to 450,000 won. This led to a significant surge in stock prices as institutional and foreign investors entered the market. There was a narrative suggesting a rebound, and indeed, LG's stock has already risen by over 30%. I believe there is potential for further increases. However, what is the atmosphere like in the secondary battery sector? So far, the news regarding secondary batteries has been predominantly negative, with reports of poor performance and expectations for a weak second half, leading to statements about adjusting investment timing. The introduction of the 8046 battery, which LG originally planned to start mass production in August, has been postponed to December. This all contributed to the decline in stock prices.

In July, there was a significant decline in electric vehicle sales in the United States and Europe compared to the previous year. This sparked various discussions, including incidents in Incheon and Portugal, as well as the Tesla Cybertruck, which experienced issues on the highway. Due to these events, there was a temporary atmosphere of panic surrounding secondary batteries. However, shortly after, the market began to recover. As I mentioned earlier, the narrative around the market became a bit burdensome, leading to a situation where stocks were rising, and the supply was not fully saturated. In other words, even if one were to buy stocks, there wasn't much selling pressure due to a lack of available shares. This, along with the excessive drop in prices, contributed to an overall upward trend.

Stocks have been moving in a cyclical manner, and there was a rebound in stock prices as a result. As mentioned earlier, there were also narrative effects at play. However, right now, it is a battle between narratives, and the positive aspects I mentioned earlier have been further strengthened. The reason for this strengthening is a report from Morgan Stanley regarding secondary batteries. To summarize the key points, the European Union has adjusted its 2025 CO2 emission target from 118g/km to 93.6g/km, essentially encouraging the sale of electric vehicles with lower carbon emissions. The report states that electric vehicle sales are expected to increase by as much as 41% next year compared to this year, which includes LG Energy Solution.

The target price for the stock, which was originally 300,000 won, was raised to 550,000 won, and then for LG Chem, the target price was increased from 350,000 won to 450,000 won. As a result, the stock prices surged. There was a significant influx of institutional and foreign investors into this market, which contributed to the rapid rise. I have read and pondered a lot about this, and I have two main concerns. One is related to a report from Morgan Stanley that advised preparing for the peak in the semiconductor industry. The previous month, Morgan Stanley had given a sell signal regarding semiconductors. Now, they have released a buy report for secondary batteries, and I wonder if this is truly justified compared to the face value. What this implies is that it is projected that electric vehicle sales will increase by up to 41% in 2025. This suggests that there are no concerns about the economy, as it assumes the economy will be good. The second point is...

Now, looking at it from the opposite perspective, I personally have concerns about knowing that there will be an explosion in 2025. So, why aren't they selling now? And why are electric vehicle manufacturers suddenly trying to reduce their sales? I have some thoughts on these aspects. I believe this direction is correct, but it also feels somewhat inflated. That's the impression I have. Regardless, I see this report as playing a favorable role in elevating things to another level.

What were the issues in the recent electric vehicle fire? In the case of the Cheongna incident, the electric vehicle was completely burned down, making it impossible to determine the cause. However, if you look at articles and such, as I've attached an article below, there's the BMS, or Battery Management System, which is supposed to manage and inform about the battery's condition.

The driver limited edition was said to have no issues, and I am only speculating that there might have been a problem based on what the CEO mentioned. However, there are actually various reasons why fires can occur. It's not just limited to one issue, and it's not solely due to the battery. For example, the recent news about the EV6 was attributed to a battery defect, where some of the battery cells were faulty. In order for the electric vehicle market to expand in the future, we need to find ways to mitigate market anxieties and calm concerns. In this context, Hyundai and Kia have been actively promoting their Battery Management System (BMS), asserting that they are prepared and that there are no issues on their end. And now, in fact, with regards to Mercedes-Benz...

There has been some controversy regarding the use of batteries made in China, specifically from companies that are not in the top one or two in the industry but rather around twelve companies. As a result, the European Union has already decided to enforce a battery labeling system by 2026. It seems that this aspect will also be strengthened domestically. Ultimately, this will increase the responsibility of battery manufacturers, and in that case, the competitiveness related to the safety of battery companies will need to be closely monitored in the future. In this context, if we look at BMS technology, South Korean companies hold about 55% of the patents when compared to companies from China and Japan. Furthermore, we have been continuously reinforcing safety and stability in this area, so if these measures are strengthened, it may not be a bad thing for us.

I don't think it will happen. By the way, this is a reference to an old article. You might remember the smartphone, the Galaxy, which I think was the S7. There were some issues due to a fire, and at that time, they said you couldn't take that phone on a plane. That was a while ago, but it was effectively banned. It may not have progressed much since then, but now companies like Samsung Electronics and Apple are actively working to develop their products, such as the Galaxy Note 7, while improving safety standards. Nowadays, who doesn’t take their phone on a plane? It's really just a matter of time. Currently, the noise around this issue is quite serious, but if you look at it, there are also exaggerated aspects. Additionally, when it comes to electric vehicles catching fire, there are other factors to consider.

The explosive power of this is quite significant. Lithium and similar materials are flammable, which contributes to this issue. However, these aspects will eventually be addressed. Additionally, I want to mention that due to recent electric vehicle fire incidents, there is a growing concern that we can no longer park electric vehicles in underground parking lots. This leads to the perception that electric vehicles will not sell well. However, this concern is limited to our country; abroad, there is little interest in this issue. In many foreign countries, single-family homes are more common than apartments, so they do not experience the same level of fear that we do here. Therefore, I believe that this will have a limited impact on the growth of the electric vehicle market. What are the differences between Chinese batteries and domestic batteries?

What are the differences between Korean and Chinese batteries? China is now also producing NCML batteries, but they are not focusing on high nickel batteries like we are. We are primarily moving towards high nickel batteries, while China is mainly focusing on LFP batteries. Regarding BMS-related patents, as we have shown earlier, we hold about 55% based on the standards of South Korea, China, and Japan. However, in China, apart from companies like CATL, the smaller companies do not seem to have significant shares in that area. As for raw materials, we are currently facing the issue of decoupling from China, but in reality, we have not fully achieved this yet. Therefore, we need to consider many aspects regarding this issue. On the other hand, China has a strong hold on the global raw materials market and is providing government subsidies. This means that the Chinese market is not only large in size but also benefits from low prices due to these subsidies.

On one hand, there is an atmosphere of significantly scaling up and pushing it out into the world, while on the other hand, we have grown without such subsidies. In North America, we are now receiving some subsidies related to batteries. So, there are some differences in these aspects. Of course, when we buy cars, subsidies do come into play. Our battery companies are not only advancing into Europe and North America but are already operating factories there, and many more will begin full-scale operations by 2025. In contrast, in China, aside from local operations, there are some factories in the European Union, but they are not yet operating normally. Those are expected to start operating around 2025, and once they do, the next challenge will be achieving yield rates. However, our companies have struggled for over two years to achieve these yield rates. Therefore, as of now, China is still lagging behind outside its local operations.

I understand that there are currently no battery manufacturing plants operating normally. It seems that there is quite a difference in this regard. What impact will the introduction of the battery certification system have on domestic battery companies? First of all, the electric vehicle certification system involves disclosing the origin and manufacturers of the batteries, which is intended to strengthen accountability for the batteries. Due to the recent fire incident, companies that have entered the South Korean market have disclosed the manufacturers of their batteries. If you look at the chart next to me, you can see that Hyundai is using mostly domestic batteries. Aside from the CATL batteries in the Kona, it seems that all other batteries are domestically produced. Furthermore, among the domestic companies that have entered the market, it appears that most of them are using domestic batteries, with the exception of Mercedes-Benz. So, it seems that this is the current situation, and since the issue has arisen, there are calls to introduce battery certification in the country.

The public opinion is growing significantly, and ultimately, it will lead to questions about who manufactured the battery. This will inevitably highlight the responsibility of battery manufacturers and the safety aspects of their products. In such cases, from my personal perspective, I believe that consumers will tend to prefer companies that are more trustworthy, especially when considering various factors. For instance, I am somewhat familiar with CATL, but I only recently heard of Paracis. Therefore, people will likely lean towards brands that inspire more confidence. If, for example, a battery is used in Hyundai's Genesis, it could be branded as Solaris Genesis or something similar. This reminds me of the old days when we used to see Intel Inside on computers. Although Intel Inside doesn't hold much significance now, it was quite impactful back then.

As a result, the preference for domestic products, particularly those from Buksan, may increase due to this standardization of products. At least within the country, and additionally, starting from 2026, when this regulation will be implemented in foreign markets, it is anticipated that consumers in the European Union will also consider which battery is used in the vehicles they choose. This may influence their purchasing decisions in relation to pricing and other factors. I thought I would share some articles highlighting the good aspects of the current situation. Overall, it seems that this time, Mercedes-Benz has experienced some recalls due to BMS defects. This image is captured from a YouTube video called Auto Gear, showing the EQS 350 model from 2022, which was actually released in 2021.

It's about disassembling what was manufactured and showing it. As mentioned here, there were several issues pointed out regarding battery design. I don't think I need to say anything special; rather, I would suggest you take a look at the content. If you compare this battery with the one in the Ioniq 5, you will clearly notice significant differences. It appears to be very safe, and everything is neatly organized. The coolant that was flowing externally is all properly managed. So, in comparison, it gives off a feeling of being very safely designed. I think if these aspects appeal to people, the demand for batteries in our country could increase. From a perspective of market trends, I view this positively.

What is the current status of the three battery companies? Samsung SDI has established a joint venture with GM. In the case of LG Energy Solution, during the second quarter conference call, they advised not to expect too much in the second half and downgraded their guidance. However, they recently hinted that things might improve compared to the previous downgrade. Additionally, as I mentioned earlier, Morgan Stanley, a foreign securities firm, raised its target stock price to 550,000 won, which has had a positive effect. Looking at the details, it seems that GM is currently reviewing the Toyota plant for the third factory, known as the GM5 plant. This was reported in the news. Furthermore, Sol stated that they would adjust investments considering financial risks. According to news from Energy Solution, mass production of the 4680 battery has been postponed to November, and the timeline for the precursor has been pushed back to 2030.

It seems not so good, but November is approaching soon. Currently, there are no places producing in the Seru Pie area, so if this can be achieved by then, it might not be a bad thing. Moreover, this could significantly reduce the fire risk, which means it has the potential to become a groundbreaking product in the future. If mass production is implemented first, it could paint a very positive picture for LGN. The main companies we deal with include Tesla and Hyundai. The batteries being produced are cylindrical and pouch types. Regarding Samsung SDI, they are talking about poor performance, but among the three companies, their performance is the best. Why do I say it's the best? Because they hardly receive AMPC but still generate an operating profit of over 200 million per quarter, indicating stable earnings.

There is the aspect of having it, and then, as you mentioned recently, they announced the construction of a joint venture factory with GM. They stated that since the cash flow is good, they will proceed with investments as planned. Regarding feedstock for batteries, they expressed their intention to start mass production in the first half of 2020, and particularly for the precursor, they are continuing to discuss mass production in 2027. However, since there was a fire incident, there is a lot of interest in all-solid-state batteries, and related stocks are trending. Just because mass production is set to begin, it doesn't mean it will sell tremendously; rather, it seems they are considering market positioning and the effects of raising awareness. Their main clients include Stellantis, Volkswagen, and BMW, and the types of batteries they are producing are prismatic and cylindrical; they do not manufacture pouch batteries. In the case of SK1, they experienced a significant earnings shock in the first half of the year.

It was difficult, but recently, as we entered the second half of the year, there have been talks about the possibility of achieving operating profits on a quarterly basis, which is quite optimistic. However, the first half was particularly challenging because Ford reduced its sales targets for the plant in Valladolid, leading to a decrease in production. Hyundai has been taking over that volume and increasing deliveries to Hyundai, which seems to provide some support. Recently, Ford has also slightly changed its policy to ramp up production and has expressed a willingness to sell more. Therefore, there are cautious discussions about the possibility of operating profits in the fourth quarter. Additionally, as SK Innovation has been facing difficulties, SK On has been steadily increasing its market share.

Recently, I passed an exam with a company called SK, which has a very strong cash cow, meaning it's a company that earns a lot of money. The significance of this merger is that, at the very least, SK will be able to secure funding and, subsequently, support growth, thus gaining the necessary strength in that aspect. The main trading vehicle is the Hyundai Ford Goliath, but there isn't a specific mention regarding all-solid-state batteries. The primary battery type being produced is pouch-type batteries, and they currently have a joint venture with Ford. It seems that the three major battery companies have already undergone some adjustments. What do you think about investing? They mentioned a rebound in the narrative, and indeed, LG Chem has already risen by over 30%. I believe there is potential for further increases, but I don't think the extent of the rise will be very significant. I'm still focused on performance-based metrics.

It's not a rebound; rather, there has been movement based on this narrative. Recently, the vacant home effect has played a significant role, and another aspect is that players who were long and short have been selling semiconductors while also dealing with the short positions they had taken. Therefore, while additional gains are possible, I don't think we can expect anything too substantial. As I mentioned earlier, if there happens to be an increase of 10% or 15% from here, followed by a pullback, the new low might be higher than the previous low. For example, if the previous low for LG was around 300,000 won, the new low could be 360,000 won, 350,000 won, or even higher. If we confirm a bottom at a price above this recent low, it might be a good opportunity to consider entering the market.

외국인이 LG엔솔 미친듯 사는 이유. 2차전지 뜻밖의 호재가 떴다 (이영훈 이사, iM증권 / 2부)

* 출연신청 & 제휴 및 광고문의 : ssid@dpnstud.io


외국인이 LG엔솔 미친듯 사는 이유. 2차전지 뜻밖의 호재가 떴다 (이영훈 이사, iM증권 / 2부)

Scripts