The global frenzy for electric vehicles (EV) that has seen Tesla Inc’s stock surge threefold is now juicing the shares of a South Korean supplier that has become the world’s biggest maker of electric vehicle batteries.
South Korea’s LG Chem Ltd has surged more than 60 percent this year to a valuation of about US$30 billion, becoming the sixth-largest stock on the benchmark KOSPI and leaving Hyundai Motor Co, the nation’s largest automaker, in the dust.
While LG supplies many automakers, including Hyundai, it has been particularly fueled by a deal to supply batteries to Tesla’s China factory, which is pumping out Elon Musk’s vehicles at a growing clip.
Expanding electric vehicle subsidies in Europe and Tesla’s stupefying rally have buoyed related stocks worldwide, despite global economic concerns. Fundamentals matter little, with Tesla just starting to show profit and electric truck maker Nikola Corp yet to produce its first semi.
“We believe LG Chem is set to benefit the most in Europe with its high market share and positioning,” said Jae Lee, chief executive officer at Timefolio Asset Management SG Pvt, a Singapore-based hedge fund that holds LG Chem shares.
LG Chem had 24 percent of the global electric vehicle battery market as of the end of May. China’s Contemporary Amperex Technology Co Ltd (時代新能源科技) has been hurt by the pandemic, a trade dispute with the US and a scaling back of government subsidies in its home market, although it recently forged a supply contract of its own for Tesla’s Shanghai facility.
LG Chem had a US$124 billion battery order backlog early this year and aims to expand capacity to 100 gigawatt hours by end of the year and 120 gigawatt hours next year.
Investors increasingly view it as a battery company rather than a chemicals producer, despite 52 percent of total revenue coming from chemicals last year, according to Bloomberg Intelligence.
“LG Chem has the largest capacity for EV batteries in the world now and it’s even increasing it, while rivals are not doing so,” said Wooho Rho, an analyst at Meritz Securities Co.
Rho and at least six other analysts raised their price targets for LG Chem this month, with Meritz expecting a consolidated operating profit of 532 billion won (US$440 million) for the quarter ended last month, the most in about two years.
The firm’s shares fell 1 percent in Seoul yesterday, extending its 2.5 percent drop last week.
Some investors are worried that rising competition among battery makers might put pressure on growth in margins, Hana Financial Investment Co analyst Kim Hyun-soo said.
Other market concerns include the possibility that Tesla could announce a new battery supplier at its “Battery Day” event on Sept. 22, Rho said, adding that such concerns are probably overblown given the high barriers for any potential new partner.
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