Secondary battery stocks, including 'EcoPro 3', bounce back on 'Tesla effect'... 'chasm swamp' remains

[Korea Financial Times, Jeon HanSin] A day after Tesla was named Morgan Stanley's top pick for the automotive sector, secondary battery stocks slipped back into the red. Investor sentiment also froze after major battery makers posted weak second-quarter results as the global electric vehicle market entered a “chasm” phase of slowing demand.

According to the Korea Exchange, the KRX Secondary Battery TOP 10 Index, which includes 10 major domestic secondary battery companies, closed at 3638.55, down 2.87% from the previous day's close at 3745.95. The trading volume was 3.99 million shares and the trading value was KRW 70.39 billion.

By index component, the biggest decline was recorded by the three Ecopro brothers. EcoProperty ended the day at 81,000 won, down 4.48% from the previous trading day (84,800 won), while the shares of EcoProbium and EcoPro also fell 4.05% and 3.95%, respectively. In addition, Samsung SDI (-3.33%), LG Energy Solution (-2.7%), L&F (-2.4%), Fosco Future M (-1.86%), and SK innovation (-0.1%) fell together. SK E&T (+0.54%) and LG Chem (+0.16%) were slightly higher.

The companies' recently announced second-quarter results fell short of market expectations. On Monday, EcoPro reported consolidated revenue of 864.1 billion won in the second quarter of this year, down 57% from the same period a year earlier. The operating loss was 54.6 billion won, down from 170.3 billion won in the year-ago quarter.

During the same period, EcoProBMs sales and operating income fell 57.5% and 96.6% year-on-year to 809.5 billion won and 3.9 billion won, respectively. For EcoProMaterials, sales fell 76.9% year-on-year to KRW66.7 billion, and operating losses were KRW3.7 billion. POSCO FutureM's operating profit plunged 94.8% in the second quarter, while LG Energy Solutions and Samsung SDI also saw their profits shrink by 57.5% and 37.8%, respectively.

The news of Tesla's massive recall in the U.S. also added to the bad news. According to the National Highway Traffic Safety Administration (NHTSA), Tesla has identified a problem with software in some of its vehicles that fails to detect when the hood is open and has recalled about 1.85 million vehicles potentially affected by the issue. This sent Tesla's stock price plunging 4.08%.

In addition, with the uncertainty of the U.S. presidential election in November, experts advised against chasing battery-related stocks. “The electric vehicle and battery industry will be hit hard if Trump is elected, and the current growth can only be sustained if Vice President Harris is elected,” said Han Byung-hwa, a researcher at Eugene Investment & Securities. ‘Considering the companies’ short-term business conditions and earnings estimates are being lowered, a conservative approach is recommended.”

“Assuming a Harris victory, we believe EV and battery stocks at current low valuations can be bought on a medium- to long-term basis, while higher valuations remain at risk of share price declines.”

“The second quarter of this year saw a prolonged period of sluggish global EV sales, with shipments beginning to decline even for companies that have been holding up well,” said Jeon Hye-young, a researcher at Daol Investment & Securities. ”The impact of lower selling prices due to falling metal prices is expected to continue into the second half of the year, and unless there is a rebound in sales, the market is likely to remain in a period of negative growth.”

“EV strategies of major OEMs continue to be revised and downgraded,” said Jeon, adding, ”We recommend a conservative approach at least until a rebound in shipments from cell makers is confirmed.”

On the other hand, Changmin Lee, a researcher at KB Securities, said, “The secondary battery sector is expected to see an upward trend in stock prices if the Democratic Party wins the U.S. presidential election in three months' time.” “With expectations of interest rate cuts and competitive new car launches, the secondary battery sector could see an uptick in stock prices if the popularity of the Democratic alternative candidate increases.”

Jeon HanSin (pocha@fntimes.com)