[Click eStock] "Secondary Battery, Electric Vehicle Growth Reemphasized Post-COVID-19... Supply Shortage in Europe"

"Similar to the 'iPhone' in the past smartphone industry"
"The explosive growth of the electric vehicle market due to 'Tesla' is just beginning"

[Asia Economy Reporter Oh Juyoun] Hanwha Investment & Securities stated on the 7th that once the COVID-19 pandemic subsides, the growth potential of the electric vehicle market will once again attract attention, and presented a 'positive' investment opinion on the secondary battery sector. They explained that there is a high possibility of a secondary battery supply shortage in the European market, and even with a conservative view, supply shortages are expected to occur from 2023, with electric vehicles featuring improved marketability based on strong environmental regulations continuously being launched. The explosive growth of the electric vehicle market driven by 'Tesla' is now beginning, similar to the 'iPhone' in the past smartphone industry.

Kim Junhwan, a researcher at Hanwha Investment & Securities, released an analysis report titled "Secondary Batteries, Electric Vehicles: Unchanging Change," diagnosing the situation as such.

Researcher Kim said, "It is true that there is short-term uncertainty due to COVID-19, but after the pandemic subsides, the secondary battery sector will be the first to recover medium- to long-term growth potential," recommending the secondary battery sector as a beneficiary industry based on the expansion of electric vehicle demand in Europe, which will begin in earnest from the second half of this year.

The focus is on battery supply and demand analysis in the European region rather than globally, because the performance of domestic cell companies within Europe is key to future stock prices and business prospects, and the global supply and demand outlook is diminished in significance due to uncertainties in the Chinese market.

According to Hanwha Investment & Securities, the proportion of domestic cell companies' shipments to Europe in 2019 was 65.8% for LG Chem and 78.7% for Samsung SDI, showing concentration in Europe. Although currently overshadowed by Tesla's soaring stock price, the growth of the European market is judged to be the driving force behind the stock price increase of the domestic secondary battery value chain.

In 2019, Europe's xEV sales volume was similar to China's, but due to a lower BEV ratio compared to China, Europe's electric vehicle battery demand (23GWh) was about half that of China (49GWh). However, by 2025, the European xEV market is expected to account for 30% of the global market, and battery demand is projected to reach 355GWh, similar to China's 407GWh.

Researcher Kim predicted, "Over the next five years, electric vehicle demand will surge mainly in Europe, which will be a benefit factor for domestic companies focused on European customers."

Meanwhile, there is a high possibility of a secondary battery supply shortage emerging in the European market.

Researcher Kim stated, "Despite conservative sales volume assumptions, the European secondary battery market is expected to enter a supply shortage phase from 2023," adding, "This is earlier than the 2024 timeline anticipated by most currently." He added, "If there is confidence that the supply shortage period will come earlier, it can provide a significant positive catalyst for investment in the secondary battery sector."

Once the uncertainty caused by the COVID-19 pandemic clears, the European electric vehicle market is expected to grow explosively again.

This is because strong carbon dioxide emission policies will be implemented in Europe, and the launch of third-generation electric vehicles with greatly improved marketability will accelerate.

Researcher Kim analyzed, "In 2019, the electric vehicle markets in China and the U.S. either contracted or grew far below expectations, while Europe grew by 37%. Europe promoted BEV sales by automobile OEMs through carbon dioxide emission regulations, and under the current situation, most OEMs in Europe except Toyota will have to pay fines of at least 2 billion euros starting in 2021, so they have no choice but to pursue electric vehicle expansion strategies."

He then recommended Samsung SDI, Iljin Materials, and POSCO Chemical as top picks.

Samsung SDI is expected to maintain stable performance in the small battery sector, while the mid- to large-sized battery segment is anticipated to grow externally through the expansion of its Hungarian plant based on highly profitable orders. Iljin Materials is the number one domestic copper foil company in terms of capacity and sales, and stable sales and profits are expected in the future. Additionally, POSCO Chemical is expected to show full-scale sales growth in cathode and anode material businesses from the second half of the year based on stable cash flow.