K-Battery Hit Hard by U.S. and European Headwinds: 2026 Outlook [Why&Next]

A Series of Negative Disclosures at Year-End
Spreading Uncertainty Across the K-Battery Sector
Automakers Revise Electrification Plans
Amid Looser EV Regulations in the U.S. and Europe
ESS Market in Focus to Offset EV Slowdown
Experts Offer

Although 2026 has arrived, uncertainty surrounding the battery industry remains unresolved. At the end of last year, domestic battery cell and materials companies such as LG Energy Solution, SK On, POSCO Future M, and L&F issued a series of negative disclosures, including contract cancellations and reduced investments, fueling a sense of crisis across the entire K-battery sector.

As electric vehicle regulations have eased in the United States and Europe, global automakers are revising their electrification strategies. This shift is having a direct impact on the Korean battery industry.

How much the performance of energy storage systems (ESS), driven by the expansion of AI data centers, can offset the slowdown in the electric vehicle market is expected to be a key factor determining the results of K-battery companies this year.

K-Battery: Have All the Bad News Been Cleared?

Battery companies released a slew of negative news at the end of last year, almost as if it were coordinated. LG Energy Solution canceled contracts worth 13.5 trillion won in just one month. Its contracts with Ford, a U.S. automaker, worth about 9.6 trillion won, and with U.S. battery pack manufacturer Freudenberg Battery Power Systems (FBPS), worth 3.9217 trillion won, were both terminated.

POSCO Future M disclosed that, of the 13.7697 trillion won long-term supply contract for high-nickel cathode materials for electric vehicles signed with General Motors (GM) since 2023, only 2.8112 trillion won had actually been executed.

L&F also announced that the size of its high-nickel cathode material contract with Tesla had been adjusted from 3.8347 trillion won to 9.37 million won, effectively meaning that almost none of the contract was fulfilled.

SK On revised its facility investment amount for the Seosan 2·3 plants from the original 1.7534 trillion won to 936.3 billion won. The completion date for the investment was also postponed by one year, from December 31 of last year to December 31 of this year. This adjustment in investment size and timing is seen as a response to the slowdown in the electric vehicle market.

SKC abandoned its cathode material business. The company announced at the end of last year that it was canceling its plan to enter the next-generation cathode material business, which had been part of its mid- to long-term growth strategy presented in 2021. The reason cited was that "as the electric vehicle chasm prolongs, investment and production scale across the secondary battery industry have contracted."

Now, the market's attention is focused on whether any negative news remains. Industry insiders expect further disclosures before the fourth quarter 2025 earnings announcements.

On January 2, NH Investment & Securities analysts Joo Minwoo and Yang Junghyun commented on LG Energy Solution, stating, "The soon-to-be-announced suspension of Ultium Cells (the battery joint venture with GM) is likely to mark the peak of pessimism," and added, "We estimate the one-off costs related to this, assuming Ultium Cells' 2026 sales volume at 6 GWh, will exceed 1 trillion won." LG Energy Solution had previously forecast Ultium Cells' 2023 sales volume at 28 GWh.

Simultaneous Headwinds from the U.S. and Europe

Recently, as electric vehicle regulations have been relaxed in North America and Europe, global automakers have revised their electric vehicle strategies, delivering a direct blow to domestic battery companies.

On December 3, the U.S. National Highway Traffic Safety Administration (NHTSA) significantly eased the Corporate Average Fuel Economy (CAFE) standards that automakers must meet. For model year 2031, the standard was lowered from 50 miles per gallon to 34.5 miles per gallon.

CAFE refers to the average fuel economy of all vehicles sold by a manufacturer. If this standard rises, automakers must reduce internal combustion engine vehicles and increase electric vehicle sales. The previous 50 miles per gallon was an unattainable figure for internal combustion vehicles, effectively serving as a de facto electric vehicle mandate.

With the easing of CAFE standards, North American automakers can now slow their transition to electric vehicles.

Previously, the Trump administration's second term, under the "One Big Beautiful Bill (OBBBA)," eliminated the maximum $7,500 purchase subsidy for electric vehicles released after the end of September 2025. As a result, electric vehicle sales in the U.S. are expected to have plummeted in the fourth quarter of last year. According to Meritz Securities, after the subsidy was abolished, pure electric vehicle sales in North America in October last year dropped by 45% compared to the previous month.

The European Commission also scrapped its previous plan to make carbon emissions from all new cars sold by 2035 "zero (0)." Instead, the revised plan requires automakers to reduce emissions to 90% of 2021 levels even after 2035.

To achieve zero carbon emissions, automakers would have had to sell only electric vehicles. However, with the relaxation of these regulations, they now have the flexibility to continue producing internal combustion engine and hybrid vehicles.

As a result, automakers are revising their electrification strategies. Ford, for example, halted production of its electric pickup truck, the F-150 Lightning, last month and canceled the development of its next-generation electric pickup truck (T3) and electric commercial van. The contract cancellation with LG Energy Solution is also seen as a consequence of these changes.

Yuanta Securities analyst Lee Anna stated, "The European electric vehicle market is expected to continue growing around plug-in hybrids (PHEVs) in 2025 and 2026," and added, "With demand for pure electric vehicles (BEVs) slowing, we are revising our annual growth rate forecast downward from over 20% to around 17% compared to the previous year."

Chinese Electric Vehicle Market Also Slowing... Fierce Competition Expected in Europe

The Chinese electric vehicle market, which had been growing rapidly, is also expected to slow from 2026 onward. If China's domestic market shrinks, Chinese battery companies are likely to look overseas to address oversupply. Korean companies are expected to face tough competition in the European market, in particular.

According to major foreign media, Cui Dongshu, Secretary General of the China Passenger Car Association, stated on his social media at the end of last year, "Demand for new energy vehicles (electric vehicles) will drop sharply from the end of 2025," and added, "Battery manufacturers should reduce production and prepare for volatility." He predicted that, as tax incentives for car purchases are phased out, sales of eco-friendly passenger cars will decrease by at least 30% in early 2026.

Previously, O Ikhwan, Vice President of SNE Research, also explained at an analyst day held last month, "The Chinese electric passenger car market will reach 13.2 million units in 2025, a 19% increase from the previous year," and added, "As the electric vehicle penetration rate rises, the growth rate has been slowing since the second half of 2025."

As the Chinese electric vehicle market falters, electric vehicle and battery companies are turning their attention to Europe. Entry into the U.S. market is restricted for Chinese battery companies due to the newly established Prohibited Foreign Entity (PFE) regulations.

Chinese companies are already accelerating their push into the European market. CATL plans to begin operating its 40 GWh battery plant in Hungary early this year. From January to October this year, the combined market share of the three major Korean battery companies in the European electric vehicle battery market was 35%, down from 71% four years ago-effectively halved.

Growing ESS: Can It Make Up for the Electric Vehicle Market?

With the slowdown in the electric vehicle market persisting, K-battery companies are expected to face a lean period for the time being. The market is forecasting a decline in sales and operating losses for the three major Korean battery companies-LG Energy Solution, Samsung SDI, and SK On-in the fourth quarter of 2025.

NH Investment & Securities projects that LG Energy Solution's sales in the fourth quarter of 2025 will be 5.9 trillion won, down 8.2% from the previous year, with an operating loss of 180 billion won. Samsung SDI's sales for the same period are expected to decrease by 6.5% year-on-year to 3.5 trillion won, with an operating loss of 338.7 billion won.

Domestic battery companies are pinning their hopes on ESS. However, experts' views on ESS vary by company.

Kang Dongjin, an analyst at Hyundai Motor Securities, analyzed LG Energy Solution, saying, "The impact of contract cancellations on performance is minimal, and some of the loss can be offset by future compensation. The market's expectations for ESS remain conservative, so there is significant room for upward adjustment in the future."

NH Investment & Securities analysts Joo Minwoo and Yang Junghyun stated regarding Samsung SDI, "A recovery in electric vehicle performance is expected only after 2027, when new projects such as 46mm cylindrical batteries and lithium iron phosphate (LFP) prismatic batteries begin. ESS, too, is expected to make a meaningful contribution to profitability starting in 2027, after ramping up production in 2026."

On the other hand, Choi Moonseon, an analyst at Korea Investment & Securities, diagnosed, "The new battery ESS power generation capacity in the United States for 2025 is 17 GW, which is 13% below the U.S. Energy Information Administration (EIA)'s projected 19.6 GW as of January. The growth rate of demand for ESS battery cells may also slow." The EIA's November 2023 estimate for new ESS power generation capacity in 2026 was 23.7 GW, but actual figures may fall short.

Choi added, "I believe the market's expectation that battery ESS will make up for the electric vehicle slump is unlikely to materialize, and this will act as an additional factor for share price declines."

On a more positive note, there are signs such as rising prices for battery minerals like lithium. According to Bloomberg, the spot price of lithium carbonate in China surpassed $15,000 per ton at the end of last year, nearly doubling from the June low of $8,200 per ton.

Han Byunghwa, an analyst at Eugene Investment & Securities, explained, "With the expansion of battery energy storage system (BESS) demand, oversupply from China is easing and prices for lithium and related materials are turning upward, which is positive for all global battery-related companies. The most important factors for K-battery are verifying performance in the U.S. BESS market and the extent of regulatory measures on Chinese battery imports in Europe."