L&F Riding Tesla and Others, Anticipation for 1 Trillion Won Club

As the global electric vehicle market rapidly grows, secondary battery-related stocks are gaining attention. The United States has set a goal to increase the share of electric vehicle sales domestically to up to 50% by 2030, accelerating the growth of the global electric vehicle and secondary battery-related industries. Investors' interest is extending beyond major automakers and secondary battery manufacturers to parts and materials companies. We analyzed secondary battery materials companies that are rapidly growing every year through large-scale fundraising and production facility expansions.

[Asia Economy Reporter Park So-yeon] L&F is a producer of cathode materials, a core component of secondary batteries. It is experiencing rapid growth due to consecutive orders. After signing a long-term supply contract with LG Energy Solution last year, it also secured a large-scale cathode material supply contract with SK Innovation this year. Recently, it has expanded its business by collaborating with Tesla in the United States.

◇ Expected to Join the 1 Trillion KRW Sales Club = L&F was quick to start supplying energy storage system (ESS) materials among domestic secondary battery materials companies. However, the secondary battery industry fell into a slump due to ESS fires, whose causes were difficult to identify, causing a sharp decline in performance. From 2017 to May 2019, a total of 23 ESS fire incidents occurred domestically, and as a joint public-private investigation committee was formed, ESS-related orders plummeted.

On June 11, 2019, the investigation results were disclosed. Until then, it was speculated that lithium-ion batteries in ESS might be the cause of fires, but the conclusion was that operational and management issues were more significant than defects in the batteries themselves. Through this process, L&F’s sales, which had been rapidly growing with 250 billion KRW in 2016, 400 billion KRW in 2017, and 500 billion KRW in 2018, dropped sharply to the 300 billion KRW range in 2019 and 2020. In 2019, due to the combined effects of ESS fires, rising raw material prices, and exchange rate fluctuations, the company even recorded an operating loss of 7.7 billion KRW.

However, expectations for explosive growth in the electric vehicle market marked a period of resurgence. Increased interest in eco-friendly energy due to COVID-19 and the expansion of green policies following the Biden administration in the United States also positively contributed to performance. This year, L&F is targeting sales of 1 trillion KRW. In the second quarter, L&F succeeded in turning a profit for the first time in four quarters. Second-quarter sales were 205.4 billion KRW, and operating profit was 5.7 billion KRW, up 198% and 125% respectively from the same period last year. The operating profit also significantly exceeded market expectations of 2.7 billion KRW.

Researcher Kim Hyun-soo of Hana Financial Investment explained, "Sales of cathode materials for electric vehicle batteries exceeded 80 billion KRW for the first time on a quarterly basis, raising the sales proportion to about 40%. Although profitability had deteriorated over the past three quarters, in the second quarter, the gross profit margin rose for the first time in four quarters due to the fixed cost leverage effect from increased utilization of new production lines, and operating profit turned positive."

Researcher Kim forecasted that with the significant increase in electric vehicle battery sales, L&F’s sales will reach 1 trillion KRW this year, 2.6 trillion KRW next year, and 3.5 trillion KRW the following year. The global electric vehicle battery market is expected to grow at an average annual rate of over 30% for five years, and LG Energy Solution, the largest customer, maintains the top one or two global market shares. The increase in sales from new customers such as SK Innovation is also a positive factor. Kim added, "Following recent expansion announcements, we raised our facility investment (CAPA) estimates, and due to the rising proportion of high-end product sales, the average selling price is expected to remain at a high level." An L&F official said, "Having passed the performance low point caused by ESS fires, we have reached a growth phase that investors can be reassured about," adding, "We expect dramatic sales growth."

◇ Riding on LG, SK, and Tesla = 94.4% of L&F’s sales come from cathode materials. Cathode materials are a core component accounting for 30% of the cost of secondary batteries. L&F’s technology in cathode materials is globally leading. It developed the world’s first cathode material with 90% nickel content and began commercialization from the third quarter of last year, attracting market attention. The higher the nickel content, the larger the battery capacity that can be realized, which leads to improved electric vehicle driving range.

Based on this technology, L&F secured the title of Tesla’s partner. Recently, L&F signed a cathode material supply contract with Tesla. It is the only domestic materials company to have a direct contract with an automaker. In the future, as Tesla moves to produce batteries in-house, the possibility of directly supplying cathode materials has increased. Following a 1.5 trillion KRW supply contract with LG Energy Solution last year, L&F signed a 1.2 trillion KRW cathode material supply contract with SK Innovation this year.

Not stopping at simple supply, joint ventures with automakers and battery manufacturers are also under consideration. An L&F official hinted, "In the electric vehicle and battery industries, joint ventures or equity investments are generally progressing, and we are also reviewing this area." Researcher Choi Bo-young of Kyobo Securities said, "As L&F is receiving love calls as a main vendor from LG Energy Solution and Tesla, visibility for site selection for overseas expansion in the second half of the year is increasing, raising expectations for positive news within the year."

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