Foreign and Institutional Investors Sell While Retail Investors Buy Secondary Battery Stocks...Future Outlook

[Asia Economy Reporter Park Ji-hwan] Investors are divided in their choices regarding secondary battery suppliers such as Ecopro BM and L&F following Tesla's battery replacement news. While foreign and institutional investors are flooding the market with sell orders, driving stock prices down, individual investors are responding to the price drops by buying at lower prices, showing completely opposite behavior.

According to the Korea Exchange on the 25th, from the 21st to the 22nd, foreign investors sold Ecopro BM and L&F in the KOSDAQ market, ranking first and second in net sales with amounts of 59.8 billion KRW and 17.2 billion KRW, respectively. Institutions also net sold L&F by 43.5 billion KRW and Ecopro BM by 13 billion KRW, ranking first and fourth in net sales among institutions. In contrast, individual investors showed the opposite trend, net buying Ecopro BM and L&F with amounts of 72.6 billion KRW and 59 billion KRW, ranking first and second in net purchases.

Due to the selling pressure from foreign and institutional investors, the stock prices of secondary battery companies have clearly declined. During this period, Ecopro BM and L&F stock prices fell by 8.4% and 7.7%, respectively. As of 10 a.m. on the same day, Ecopro BM and L&F were showing declines of 0.80% and 3.44%, respectively.

This recent weakness in secondary battery stocks is a result of Tesla's announcement to switch the batteries used in its main models to LFP (Lithium Iron Phosphate) batteries. On the 20th (local time), Tesla announced plans to replace the batteries used in its Standard Range models from lithium-ion batteries such as Nickel-Cobalt-Aluminum (NCA) to LFP batteries to reduce costs. Although LFP batteries have a shorter driving range compared to NCA batteries, they do not require relatively expensive metals like nickel and cobalt, making them advantageous in terms of lower cost and thermal stability.

In the securities industry, opinions are divided between views that market concerns about the secondary battery sector are excessive and that cautious approaches are necessary given the steep price increases earlier this year.

Most agree that since domestic secondary battery companies supply NCA-based batteries, Tesla's plan to expand LFP battery use limited to entry-level models is a restricted issue. Lee Chang-min, a researcher at KB Securities, stated, "As the market had expected, entry-level vehicles will use LFP batteries, and mid-to-high-end vehicles will continue to use lithium-ion batteries, so the direction will not change significantly. Therefore, it is not considered a fundamental damage factor for domestic secondary battery value chain companies targeting mid-to-high-end electric vehicles."

However, there are also concerns that the relatively high valuation due to the significant stock price increases so far could be a burden. Ecopro BM and L&F have risen by 142.8% and 172.6%, respectively, up to the previous trading day this year. Considering the KOSDAQ market's 2.75% increase, the stock prices have surged at a frightening pace this year. Jang Jung-hoon, a researcher at Samsung Securities, explained, "The average price-to-earnings ratio (PER) for secondary battery cathode material companies next year is expected to be 62 times. With similar growth prospects for Chinese and Korean companies, domestic companies appear to be enjoying nearly twice the premium compared to Chinese cathode material companies, which have a PER of 33 times."