[Why&Next] Soaring Secondary Battery Stocks, Where Is the Top Floor?

EcoPro and then POSCO Group Stocks Surge
Material Companies Improve Performance Mainly in North American Market
Average Target Price Surpassed... Risks Remain

Following the EcoPro Group, the POSCO Group is also making waves in the domestic stock market with consecutive surges. EcoPro's stock price has surpassed 1 million KRW per share, and EcoPro BM's stock price has broken through 400,000 KRW. The market capitalization proportions of EcoPro BM and EcoPro in the KOSDAQ market stand at 8.8% and 6.9%, respectively. The status of POSCO Holdings and POSCO Future M in the KOSPI market has also changed. POSCO Holdings has overtaken Samsung Biologics to become the fourth-largest company by market capitalization. POSCO Future M is also threatening Hyundai Motor's ranking.

The surge in secondary battery stocks has its reasons. The rapid growth of the electric vehicle market is expected to cause a sharp increase in demand for secondary batteries. Last year, electric vehicle sales exceeded 10 million units. From the beginning of this year to May, global electric vehicle sales reached 3.422 million units, a 42.1% increase compared to the same period last year. As electric vehicle sales rapidly increase, the proportion of electric vehicles in the total automobile market is expected to reach about 47% by 2030.

As of last year, the global secondary battery market is dominated by the top six companies?CATL, LG Energy Solution, Panasonic, BYD, SK On, and Samsung SDI?accounting for over 80%. Domestic secondary battery manufacturers plan to expand production capacity from about 350 GWh last year to 1,210 GWh by 2027. They are focusing investments on local production in North America and Europe. If investment plans proceed as scheduled, the share of overseas production capacity is expected to exceed 95% by 2027.

Competitive secondary battery capacity expansions are leading to increased demand for core materials. Last year, the market for the four key lithium-ion secondary battery materials?cathode materials, anode materials, electrolytes, and separators?grew to approximately 54.9 billion USD. According to SNE Research, a market research firm for secondary batteries and electric vehicles, the secondary battery materials market is expected to grow from about 93.4 billion USD in 2025 to 147.6 billion USD in 2030. Among these materials, the largest market, cathode materials, is projected to grow rapidly from 17.3 billion USD in 2021 to 78.3 billion USD in 2030.

POSCO Group Raises Secondary Battery Sales Targets Through Aggressive Investment

The POSCO Group is focusing on nurturing the secondary battery materials sector. The group has set a goal to achieve sales of 62 trillion KRW in the secondary battery materials business by 2030. This is a 51.2% increase from the previously announced sales target of 41 trillion KRW last year. They have raised their performance targets and are aggressively investing in the secondary battery materials business starting this year. By 2025, 46.2% of the group's total investment resources will be allocated to the secondary battery materials business, with plans to significantly increase investment over the next three years. The focus will be on increasing market share overseas. KB Securities researcher Jeong Hye-jung stated, "POSCO holds a 6.1% stake in the Ambatovy nickel mine project, the third-largest nickel mine in the world," and added, "The production capacity targets for 2030 are 423,000 tons of lithium and 240,000 tons of nickel."

POSCO Future M is the only domestic company producing both anode and cathode materials simultaneously. It supplies key secondary battery materials to LG Energy Solution, Samsung SDI, SK On, and others. It signed a long-term cathode material supply contract worth 1.8 trillion KRW with LG Energy Solution. It also agreed to supply about 40 trillion KRW worth of nickel-cobalt-aluminum (NCA) cathode materials to Samsung SDI over the next 10 years. To meet the surging orders, it plans to invest 683.4 billion KRW by 2025 to expand high-nickel NCA cathode material production facilities. The production capacity targets for 2030 are 1 million tons for cathode materials and 370,000 tons for anode materials, which corresponds to 11% of the estimated secondary battery demand for electric vehicles in 2030.

In the second quarter of this year, POSCO Future M recorded sales of 1.193 trillion KRW and an operating profit of 52.1 billion KRW. While sales increased by 48.5% compared to the same period last year, operating profit decreased by 5.6%. Daol Investment & Securities researcher Jeon Hye-young commented, "From 2026, lithium, nickel, and other materials necessary for cathode material production are expected to be internalized through vertical integration within the group," and added, "We anticipate improved profitability through stable raw material procurement."

EcoPro Group Secures Competitiveness Through Vertical Integration of Secondary Battery Materials

The EcoPro Group has completed vertical integration from precursor production, a cathode material, to secondary battery resource recycling. In the Yeongilman 1 General Industrial Complex in Pohang, companies such as ▲EcoPro CNG (recycling) ▲EcoPro AP (high-purity oxygen and nitrogen) ▲EcoPro Innovation (lithium compounds) ▲EcoPro Materials (precursors) ▲EcoPro EM (high-nickel cathode materials) have established or are operating factories.

EcoPro BM, which has grown into a core affiliate, has established a mass production system for high-nickel cathode material products. Cathode materials are key components that determine battery voltage, capacity, and lifespan. EcoPro BM recorded sales of 3.917 trillion KRW and operating profit of 222 billion KRW in the first half of this year, representing increases of 111.8% and 54.2%, respectively, compared to the same period last year. Kyobo Securities researcher Choi Bo-young analyzed, "The profitability improvement effect due to the group's vertical integration will continue," and added, "They are demonstrating clear growth potential through overseas expansion and vertical integration."

EcoPro Materials and EcoPro EM are also growing as core affiliates within the group. While EcoPro Materials has grown as a precursor production company, EcoPro EM has established a system for mass production of high-nickel NCA cathode materials. EcoPro EM, a joint venture between EcoPro BM and Samsung SDI, completed investment in a CAM6 cathode material plant with an annual capacity of 36,000 tons in October 2021 and is producing high-nickel NCA cathode materials. EcoPro Innovation has secured technology to purchase industrial lithium carbonate cheaply and convert it into high-value-added lithium hydroxide.

Kim Jeong-hwan, a researcher at Korea Investment & Securities, stated, "EcoPro Innovation plans to expand its lithium hydroxide conversion facilities to 26,000 tons annually by the end of this year," and added, "With additional investments in Canada and Hungary, production is planned to reach 82,000 tons by 2027." He emphasized, "There is significant room to further raise the lithium internalization rate from 26% by 2027," and "The more lithium, a key raw material for EcoPro Group's cathode material business, is input at a low price, the more profitability will improve."

Stock Price Rise Outpaces Optimistic Outlook

Recently, the rise in stock prices of secondary battery material companies has been driven by a combination of optimistic growth expectations. Shin Young Securities researcher Park So-yeon analyzed, "Although the KOSDAQ index surpassed its April peak, indices excluding the EcoPro trio have yet to exceed their previous highs," and added, "Within the KOSDAQ150 index, a widening gap between the rich and poor is evident." She further noted, "Upward revisions of earnings estimates by analysts covering sectors related to secondary batteries?such as steel (POSCO Holdings), chemicals (EcoPro), and IT appliances (LG Energy Solution, Samsung SDI, EcoPro BM)?are still not aggressive."

However, the upward revisions of earnings forecasts for domestic secondary battery material companies are not keeping pace with the stock price increases. Market experts are cautious about further rises in EcoPro and POSCO Group stocks. Unless the POSCO Group raises its performance targets through aggressive investments, there are few reasons to revise earnings estimates upward based on expansion plans. On the contrary, many opinions point to uncertainties related to government support policies in various countries.

Recently, the average target price for POSCO Holdings by domestic securities firms is 483,000 KRW, which is lower than the closing price of 642,000 KRW on the 24th. The trend of upward revisions in target prices for POSCO Future M is also lagging behind the stock price increase. The average fair price is 433,000 KRW, below the current price of 542,000 KRW.

Intensifying Competition as a Variable

Intense global competition is a key variable. The combined market share of the top eight companies in the global cathode material market does not exceed 50%. The difference in market share between the first and eighth-ranked companies is only 2.7 percentage points. Moreover, Chinese companies hold a strong position in the four core material markets. Chinese secondary battery material companies occupy more than half of the market shares: 58% in cathode materials, 86% in anode materials, 59% in electrolytes, and 56% in separators. If Chinese material companies expand overseas, including into the U.S., competition with domestic companies will be inevitable.

The U.S. government's introduction of the Inflation Reduction Act (IRA) has made it difficult for Chinese material companies to enter the U.S. market. This is why domestic companies are aggressively expanding capacity. A key requirement of the IRA is securing nickel and lithium produced in countries that have free trade agreements (FTA) with the U.S. The proportion of core minerals that must be extracted and processed domestically will increase by 10 percentage points annually until 2027. To meet IRA requirements, efforts such as securing sufficient minerals and diversifying supply chains are necessary.

Chinese companies are seeking ways to circumvent the IRA. Chinese secondary battery company CATL is considering cooperation with Ford. Ford would own 100% of the joint venture's shares and receive royalties for technology transfer from CATL, aiming to evade U.S. government regulations.

Besides competition with Chinese companies, raw material price volatility could also worsen profitability. Globally, deposits of key raw materials such as lithium, cobalt, nickel, and manganese are limited and geographically concentrated, which affects the profitability of secondary battery material companies. Political situations in resource-rich countries may disrupt supply. If demand grows rapidly but supply cannot keep up, raw material prices will surge, increasing production costs for secondary batteries and electric vehicles. This could hinder automakers' plans to lower electric vehicle prices and accelerate adoption.

Daishin Securities researcher Jeon Chang-hyun stated, "There is no disagreement with the outlook that major domestic secondary battery companies will grow rapidly, especially in the North American market," but added, "Given the valuation burden from the sharp stock price rise since the beginning of the year, it is necessary to verify how much future expectations are already reflected in current prices."

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