LS Securities has maintained its cautious 'Underweight' stance on Korea's secondary battery sector.
The market is buzzing with excitement over the power demands of AI data centers, which is expected to create a massive need for Energy Storage Systems (ESS). This has fueled a sharp rally in battery stocks. However, the latest analysis suggests that this optimism might be getting ahead of the actual, near-term reality.
There are three main reasons for this cautious view. First, the surge in ESS demand won't happen overnight. While data centers do need more power, grid limitations and lengthy planning processes mean that large-scale ESS deployment will be gradual, not immediate. PJM, a major U.S. grid operator, has noted that the build-out will be lumpy, and the EIA has suggested that some near-term power shortages could be met with fossil fuels. Adding to this, a Wood Mackenzie report even forecasts a temporary dip in U.S. ESS installations in 2026, directly challenging the 'AI-driven surge' narrative.
Second, the battery industry is facing intense price pressure and commoditization. According to BNEF, battery pack prices have hit record lows, largely due to the rise of cheaper LFP battery chemistry and general overcapacity in the market. This directly squeezes profit margins. Competition is also heating up within the U.S. as rivals like Tesla with its Megapack and the GM-LGES joint venture Ultium Cells are ramping up local production of cost-effective LFP batteries for ESS.
Third, policy and trade headwinds in key overseas markets are creating uncertainty. In the U.S., a key federal EV tax credit expired in late 2025, which is expected to cool demand for EVs and the high-performance batteries Korean companies specialize in. Furthermore, new 25% tariffs on imported ESS batteries and complex supply chain rules (FEOC) are increasing costs and operational hurdles. The European market also remains highly competitive.
Amid these challenges, the report shows a relative preference for Samsung SDI. This is attributed to its stronger financial health and a product mix that includes prismatic cells, which are gaining traction. These factors could provide a buffer against the fierce price competition.
In essence, the 'Underweight' rating isn't a dismissal of the long-term potential of batteries. Instead, it's a pragmatic warning that the path forward is filled with near-term obstacles, including mismatched demand timing, fierce price wars, and a tougher policy landscape.
- Underweight: An analyst rating suggesting investors should reduce their holdings in a stock or sector, as it is expected to underperform the broader market.
- ESS (Energy Storage System): A system that captures, stores, and releases energy on demand. In this context, it refers to large-scale batteries that help stabilize power grids.
- LFP (Lithium Iron Phosphate): A type of lithium-ion battery chemistry known for its lower cost, safety, and long lifespan, making it ideal for stationary energy storage.