Secondary Battery ETF Rise 'Soars'... Is the Bottom Over?

Secondary battery exchange-traded funds (ETFs) are recording a rare strong upward trend. Analysts attribute this to the increasing global electric vehicle battery usage as well as bargain hunting.

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According to the financial investment industry on the 10th, among ETFs listed from the 31st of last month to the 7th of this month, the top performer was Mirae Asset Management's TIGER 2cha Jeonji TOP10 Leverage, which posted a return of 21.51%. Following that was Samsung Asset Management's KODEX 2cha Jeonji San-eop Leverage with 19.74%. Additionally, KODEX 2cha Jeonji Haegsim Sojae 10 Fn recorded a 13.35% return, and KB Asset Management's KBSTAR 2cha Jeonji Active also posted a 10.45% return. These results surpass the KOSPI and KOSDAQ increases of 0.03% and 2.32%, respectively, during the same period.

Until now, secondary battery-related stocks had been on a downward trend. This was due to a slowdown in global electric vehicle sales combined with deteriorating earnings of battery companies, creating a series of negative factors. For example, LG Energy Solution's operating profit in the first quarter dropped 75.2% year-on-year to 153.7 billion KRW.

However, the mood has recently reversed. This is because global electric vehicle battery usage has increased. According to SNE Research, the total battery usage in global electric vehicles (including plug-in hybrid and hybrid vehicles) sold from January to April this year was approximately 216.2 GWh, a 21.8% increase compared to the same period last year. Additionally, the European Union (EU) Commission's announcement on the 4th of next month to impose high tariffs on Chinese electric vehicles as part of anti-subsidy measures is also seen as a positive factor. There is an expectation that domestic industries may benefit from this.

However, some opinions suggest that this is not a full rebound as the pace of electric vehicle transition is slowing down. Electric vehicle sales have been slowing this year as well as last year. According to SNE Research, 14.061 million electric vehicles were registered worldwide last year, a 33.4% increase compared to the previous year. Although the upward trend continues, this figure falls short of the previous year's growth rate (56.9%) and the average growth rate since 2017 (45.9%). Notably, Tesla recently removed long-term sales targets from its annual 'Impact Report 2023.' Sales figures were specified in the 2021 and 2022 reports.

Lee Yong-wook, a researcher at Hanwha Investment & Securities, explained, "Mid-to-long-term electric vehicle sales forecasts are being revised downward," adding, "The 2030 electric vehicle forecast was 49.61 million units in 2023 but has decreased to 43.12 million units this year." He also noted, "China's electric vehicle sales up to April this year are also falling short of early-year expectations."

Jung Won-seok, a researcher at Hi Investment & Securities, said, "Recently, some countries have reduced electric vehicle purchase subsidies, and with the prolonged global high-interest rate environment, economic uncertainties, and higher vehicle prices compared to internal combustion engines, there is growing concern in the market about a slowdown in future electric vehicle demand."

However, since these concerns have been sufficiently reflected, there is a forecast that a rebound will be sought in the second half of the year. Researcher Lee Yong-wook advised, "While a derating is inevitable due to the slowing pace of electric vehicle transition and concerns over the mid-to-long-term market share decline of domestic secondary batteries, significant downward revisions of earnings estimates are now expected to be limited. Therefore, it is recommended to monitor the rebound speed in the second half and approach trading accordingly."

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