[Interview] "Chinese LFP Phobia Has Peaked" -- Why a 'Buy' Rating Was Issued After 22 Months...

Byunghwa Han of Eugene Investment & Securities, Who Issued a 'Hold' Opinion Two Years Ago
K-Battery Companies Sharpen Strategies Against LFP Batteries
European Electric Vehicle Market Showing Signs of Recovery
Trump Tariffs Expected to Boost Korean Performance in U.S. ESS Market

Byunghwa Han, Director of Eugene Investment & Securities, is being interviewed on the 12th at Eugene Investment & Securities in Yeouido, Seoul. Photo by Jinhyung Kang

"I believe that the fear surrounding Chinese LFP (lithium iron phosphate) batteries has now peaked and is entering a downward phase."

One of the main reasons domestic battery companies have recently been struggling is that they are losing the global market to China's low-cost LFP batteries. The ternary batteries, in which the three major Korean battery companies have a competitive edge, offer superior performance but are more expensive. As a result, during the recent electric vehicle (EV) demand stagnation, their performance lagged behind LFP batteries. However, there is growing anticipation that the situation will soon turn around.

Byunghwa Han, Director of Eugene Investment & Securities, stated in an interview with Asia Economy on the 12th that fears over LFP batteries have now passed their peak, expressing long-term optimism for Korean battery companies.

First, Korean battery companies' strategies to counter Chinese LFP batteries are becoming more concrete. Domestic companies such as LG Energy Solution and Samsung SDI have either begun or are about to begin mass production of LFP batteries. They also plan to commercialize LMR (lithium manganese rich) batteries, which offer performance superior to LFP at similar prices. In the United States, GM reportedly plans to mass-produce LMR batteries at its joint venture plant with LG Energy Solution and Samsung SDI. Han predicted, "If GM is the first to equip its EVs with LMR batteries, other EV manufacturers will follow suit."

Following the United States, Europe is also stepping up its checks on Chinese electric vehicles and batteries. Han explained, "In the past, Europe hesitated to take a hard line against China due to its market interests, but recently, as European automakers have lost significant market share to local Chinese brands, the mood has changed."

According to the China Association of Automobile Manufacturers (CAAM), the market share of local passenger car brands in China reached a record high of 68.7% from January to April this year. In contrast, German brands such as Volkswagen saw their market share in China fall to 13.2% during the same period. In this context, it is becoming increasingly difficult for Europe to ignore the onslaught of Chinese EVs.

Europe's move to strengthen battery recycling regulations through new battery rules is also expected to work in favor of Korean batteries. LFP batteries are less economically viable for recycling compared to ternary batteries such as NCM (nickel cobalt manganese) and NCA (nickel cobalt aluminum).

This year, EV demand has also been recovering, especially in Europe. From January to April, cumulative EV sales in Europe increased by 22% year-on-year. In May, major countries such as Germany, the UK, Spain, and Italy also saw a significant increase in EV sales. Han noted, "There were concerns that EV sales would stagnate after the European Union (EU) relaxed its carbon emission regulations for EVs to a 'three-year average' standard, but so far, up to May, there are no signs of such stagnation."

Starting in July, Germany will allow 75% accelerated depreciation for corporate EVs (a method of front-loading depreciation in the early stages of asset acquisition). The EU also plans to introduce EV leasing subsidies for vulnerable groups in the second half of the year and to implement a program to expand corporate EV purchases next year, which is expected to further boost EV sales in Europe.

In the United States, although a bill to abolish EV subsidies stipulated by the Inflation Reduction Act (IRA) is under discussion, Korean battery companies are expected to make significant gains in the energy storage system (ESS) battery market. Han said, "The Biden administration imposed about a 25% tariff on Chinese ESS batteries, and the Trump administration added a 10% general tariff, which has significantly undermined the price competitiveness of Chinese LFP batteries. Over time, the advantage of Korean batteries in the U.S. market will only grow."

Until now, Chinese companies have dominated over 80% of the U.S. ESS market with their low-cost LFP batteries, but as Korean companies begin mass-producing LFP batteries in the U.S., they are expected to take away market share from Chinese competitors.

Han analyzed that even if Korean companies only regain the U.S. ESS market, it would be enough to offset their sluggish performance in the EV sector. According to energy market research firm Wood Mackenzie, the U.S. ESS market is projected to grow from 37.9 gigawatt-hours (GWh) in 2024 to 50.1 GWh in 2026. This is equivalent to about 800,000 EVs with 60 kilowatt-hour (kWh) batteries. This is not a small volume, corresponding to half of the 1.5 million EVs expected to be sold this year, according to Cox Automotive's forecast.

In January this year, Han upgraded his investment rating for Ecopro BM to 'buy.' This came 22 months after he downgraded it to 'hold' in March 2023, citing an overheated secondary battery market. Although he faced heavy criticism from investors at the time, Han's judgment ultimately proved correct.

He said, "I issued a warning after seeing European EV sales begin to slow and Chinese LFP batteries gaining market share. While Chinese LFP batteries are still strong, European EV sales are recovering, and from next year, Korean companies are expected to perform well in the U.S. ESS market." Han emphasized, "Many investors have suffered losses and there is a large overhang of shares, leading to poor stock performance, but now is actually the time to look for positive investment opportunities."