[US Presidential Election and KOSPI] ③ Secondary Battery Stocks Facing US Headwinds... Institutions Are Picking Up

Ecopro BM, Ecopro, and Others Drop Over 10%
Active Share Changes from Individuals and Foreigners to Institutions
Possible Fuel Efficiency Regulation Removal... Caution Needed for Investment

Secondary battery-related stocks, which recorded high returns last year, have shown sluggish performance since the beginning of the year due to overlapping adverse factors such as the US presidential election and a slowdown in the electric vehicle market. On the 15th (US local time), former US President Donald Trump secured his 'Trump momentum' by winning two consecutive victories in the Republican primary elections. Following this, foreign investors and individuals rushed to sell off related stocks. On the other hand, institutions, led by pension funds, actively bought at low prices, resulting in active turnover within the sector.

'Secondary Battery Leader' Ecopro BM Down 19% This Year

On the 2nd, in the KOSDAQ market, Ecopro BM, a leading secondary battery anode material producer, closed at 229,000 KRW, up 0.44% from the previous day’s close. This is 19% lower compared to the stock price at the beginning of the year (283,500 KRW). The market capitalization, which had surpassed 30 trillion KRW at the start of the year, shrank to the 22 trillion KRW range. Ecopro, the holding company of Ecopro BM, closed at 549,000 KRW, down 14% from the beginning of the year, and Ecopro Materials, which produces precursors, a core secondary battery material, ended trading at 176,000 KRW, down 12%.

Most secondary battery stocks showed a similar trend since the beginning of the year. The largest decline was seen in L&F, which recently moved to the KOSPI market, falling 29% this year. Other stocks such as POSCO Future M (-25%), Geumyang (-24%), POSCO DX (-16%), and the three domestic battery companies Samsung SDI (-16%), LG Energy Solution (-10%), and POSCO Holdings (-8%) also showed similar trends.

There was strong selling pressure mainly from individuals and foreign investors. From the beginning of the year until the 2nd, foreign investors and individuals sold a net 65 billion KRW and 25 billion KRW worth of Ecopro BM shares, respectively, while individuals alone sold 150 billion KRW worth of Ecopro shares. Individuals also sold 265 billion KRW worth of Ecopro Materials shares. Foreign investors and individuals sold 44 billion KRW and 35 billion KRW worth of L&F shares, respectively. In the case of Samsung SDI, foreign investors sold a net 596 billion KRW worth of shares, most of which were absorbed by individuals. As a result, the foreign ownership ratio of Samsung SDI decreased by 1.6 percentage points from 44.9% at the beginning of the year to 43.3% on the 2nd.

Conversely, during the same period, institutions bought secondary battery stocks at low prices. Half of the top 10 stocks with the highest net purchases by institutions since the beginning of the year (ranked 1st, 3rd, 6th, 7th, and 10th) are related to secondary batteries. The stock with the highest net purchase was Ecopro Materials, with institutions buying 223 billion KRW worth. In the case of Ecopro Materials, a significant portion of shares shifted from individuals to institutions. Most of the shares sold by individuals (265 billion KRW worth) were absorbed by institutions such as pension funds. LG Chem attracted attention as institutions made net purchases for 10 consecutive trading days except for January 1st since January 22nd. POSCO DX and L&F are interpreted as simple passive demand due to their transfer listing to KOSPI in January. There is speculation that some retracement may occur in the future.

Concerns Over Fuel Efficiency Regulation Repeal... "Direct Hit to Electric Vehicles" Investment Caution

The market expresses concerns that former President Trump is a representative figure of anti-environmental policies. His key pledge is also the repeal of the Biden administration’s Inflation Reduction Act (IRA). The three domestic battery companies (LG Energy Solution, SK On, Samsung SDI) have announced a total investment plan of 45 trillion KRW in the US in line with the Biden administration’s IRA. Tax benefits expected to materialize from 2025 have also become uncertain. However, since the IRA requires approval by US Congress members, it is expected that repeal will not be easy.

The securities industry is more concerned about the possibility of easing fuel efficiency regulations. In fact, during Trump’s tenure (2017?2021), the growth of electric vehicles was sluggish, as confirmed by data. In early 2020, Trump significantly relaxed automobile emission standards as promised. According to Eugene Investment & Securities, electric vehicle sales in the US showed negative growth of -13% and -3% in 2019 and 2020, respectively. This was because the relaxed fuel efficiency regulations reduced incentives for automakers to produce expensive electric vehicles. Trump included a plan to terminate the Corporate Average Fuel Economy (CAFE) standards in his pre-election agenda called 'Agenda 47'.

The slowdown in the electric vehicle market, a front-line industry, is also evident. Tesla stated in its Q4 earnings report released on the 24th of last month (local time) that "the growth rate of vehicle sales in 2024 may be significantly lower than the growth rate achieved in 2023" due to "work being done to launch the next-generation vehicle at the Texas Gigafactory." Tesla unusually did not disclose its growth targets. Q4 revenue was $25.17 billion (approximately 33.63 trillion KRW), falling short of Wall Street’s expectation of $25.6 billion, resulting in an earnings miss.

Given the increased long-term uncertainty, the market urged investors to approach cautiously. Byung-hwa Han, a researcher at Eugene Investment & Securities, said, "Simulations show that the IRA requires congressional approval, so repeal is unlikely to be easy. However, since fuel efficiency regulations are administrative orders, they could negatively impact the electric vehicle sector as experienced during Trump’s first term." Won-seok Jung, a researcher at Hi Investment & Securities, also noted, "If President Trump is elected, existing policies favorable to electric vehicles may change, slowing the transition speed."