Goldman Sachs upgrades LGES to Buy, with the core reason being that behind-the-meter storage and data center demand improve the mid-term utilization path.
AI summary card
Goldman Sachs upgrades LGES to Buy, with the core reason being that behind-the-meter storage and data center demand improve the mid-term utilization path.
The report raises U.S. 2030 battery storage TAM from about 110GWh to about 170GWh, believing that ESS orders and momentum from new products such as 4680 and LFP can drive LGES earnings recovery, while Samsung SDI's valuation is already relatively well reflected.
- U.S. battery storage TAM in 2030 is raised to about 170GWh, with the main incremental opportunity coming from behind-the-meter storage and 800VDC data center architecture.
- LGES is upgraded to Buy, with the report expecting its utilization rate to rise from about 42% in FY26E to about 67% in FY28E, and FY26E-28E EBITDA potentially to double.
- Samsung SDI is downgraded to Neutral. Although the target price is raised by 70%, its share price has significantly outperformed Korean battery/materials coverage year to date, making valuation more fully reflected.
- U.S. EV demand remains weak, with BEV penetration at about 6%. ESS growth is insufficient to fully offset the EV demand gap, and the U.S. battery market may still remain oversupplied in the medium term.
- European BEV penetration remains at 18%-21%, and Korean battery makers are showing signs of stabilizing market share through OEM diversification and products such as 4680, LFP, and mid-nickel high-voltage batteries.
Report interpretation
Overview
This is a Goldman Sachs rating-change report on the Asian battery supply chain. The core change in the report is an upward revision to long-term U.S. energy storage demand assumptions, incorporating opportunities from data center-driven behind-the-meter storage and 800VDC architecture, and on this basis reassessing the earnings, target prices, and risk-reward of Korean battery and materials companies. The report chooses to upgrade LG Energy Solution to Buy, believing the market is overly focused on near-term U.S. EV weakness while underestimating ESS expansion, new product orders, and utilization recovery; at the same time, it downgrades Samsung SDI to Neutral because fundamentals remain good but valuation and share-price performance already reflect much of the positive outlook.
Core views
The report believes that rising data center power demand and grid constraints are increasing visibility for U.S. ESS demand, with U.S. 2030 battery storage TAM raised to about 170GWh, though this is still insufficient to fully offset the gap caused by weak U.S. EV demand. In Europe, although competition from Chinese battery supply remains strong, supply-chain diversification by high-end OEMs, European localization policies, and orders for 4680/LFP/mid-nickel high-voltage products are leading to marginal stabilization in Korean battery makers' market share. From an investment perspective, the report does not advocate a broad bullish view on the battery sector, but instead emphasizes relative value: LGES offers improved risk-reward after substantial underperformance, while Samsung SDI turns Neutral due to strong outperformance and higher valuation.
Analysis framework
The report uses a combination of top-down demand TAM re-estimation and bottom-up company earnings modeling. On the demand side, it remodells U.S. data center power growth, behind-the-meter storage capacity, renewable-coupled storage, and penetration of 800VDC data center architecture; on the company side, it updates 2026E-2028E EBITDA, ESS shipments, EV utilization, order momentum, FX, and margin assumptions; on the valuation side, it uses DCF, SOTP, EV/EBITDA, P/B, and scenario analysis to update target prices and risk-reward.
Methodology notes
Total addressable market for U.S. battery storage
The report incorporates behind-the-meter storage and 800VDC data center architecture into the model, raising U.S. battery storage TAM in 2030 from about 110GWh to about 170GWh, of which about 50GWh of incremental demand comes from behind-the-meter storage.
Long-term discounted cash flow
LGES's xEV battery business continues to be valued using DCF, with the valuation base rolled forward to around 2028E to reflect a clearer mid-term path for utilization and ESS demand recovery.
Sum-of-the-parts valuation
Samsung SDI's target price is based on SOTP, with the increase mainly driven by rolling forward the valuation base, higher EV/EBITDA multiples for small batteries and ESS batteries, and a higher P/B multiple for its stake in Samsung Display.
Bull-case scenarios for ESS and EV+ESS
The report compares the potential upside deviation versus current share prices for companies such as LG Chem and LGES under ESS bull-case and EV+ESS bull-case assumptions to assess risk-reward.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- LG Energy Solution (373220.KS)Core upgrade name
- Strengths
- ESS demand expansion, U.S. storage capacity, 4680 orders rising from above 200GWh at end-2025 to above 440GWh in April 2026, increasing orders for LFP and mid-nickel high-voltage products, and a clearer path for utilization recovery.
- Weaknesses
- Near-term weak U.S. EV demand, low North American shipments to large battery customers, and multi-site ramp-up costs for North American ESS in 2026E pressuring margins.
- Comparison
- Relative to Samsung SDI, LGES has significantly underperformed over the past year and year to date, and its valuation better reflects near-term EV risks, making risk-reward more attractive.
- Risks
- Lower-than-expected market share, slower-than-expected ramp-up of new EV/ESS production lines, lower-than-expected global EV penetration, difficulty realizing IRA tax credits, and falling oil prices.
- Samsung SDI (006400.KS)Core downgrade name
- Strengths
- Long-term fundamentals remain solid, small-battery earnings are improving, tab-less cylindrical battery ramp-up has momentum, EV utilization may recover faster than expected, and customer diversification supports shipments.
- Weaknesses
- The share price has already significantly outperformed, valuation is more than one standard deviation above the long-term mean, and it trades at a premium to NAV; assumptions for xEV market share, margins, and ESS in the base case are already largely priced in.
- Comparison
- Relative to LGES, Samsung SDI's fundamental quality is more recognized by the market, but its current valuation offers a lower margin of safety.
- Risks
- Changes in EV demand in Europe and the U.S., changes in EV/ESS shipments and market share, electronic materials margins, and KRW/USD exchange-rate volatility.
- LG ChemBuy-rated name within coverage
- Strengths
- The share price is near a 23-year low, with P/B of about 0.8x and about a 70% discount to NAV; the bottoming of the chemical cycle, lower capex in LGES and non-LGES businesses, and improving free cash flow provide a recovery path.
- Weaknesses
- The chemical business is still in a cyclical downturn, and ex-China batteries and cathode materials continue to face pressure.
- Comparison
- The report's scenario analysis shows that LG Chem and LGES offer more favorable risk-reward relative to peers.
- Risks
- Slower-than-expected recovery in chemical demand, delayed EV demand recovery, and volatility in LGES valuation and earnings.
- SK InnovationSell-rated name within coverage
- Strengths
- Business covers refining, petrochemicals, lubricants, E&P, batteries, materials, and gas & power.
- Weaknesses
- SK On's gap versus LGES and Samsung SDI in new product launches, R&D investment, and cost curve may widen, and the battery business earnings inflection point may come later than company guidance.
- Comparison
- Relative to leading battery makers, its position on technology and cost curve is weaker, resulting in unfavorable risk-reward.
- Risks
- Delayed battery breakeven, capex pressure, and volatility in refining cycles and energy prices.
- Posco Future MSell-rated name within coverage
- Strengths
- One of the few Korean companies with both cathode and anode capacity, backed by its parent company in metals resources and recycling, and an important participant in the localized U.S. battery materials supply chain.
- Weaknesses
- Despite solid fundamentals, valuation is considered high.
- Comparison
- Even under an ESS bull-case assumption, its 2030 exit multiple remains above the typical range for Japanese specialty chemical companies.
- Risks
- Cathode oversupply, weaker-than-expected customer orders, and valuation derating.
- Ecopro BMSell-rated name within coverage
- Strengths
- Extensive experience in high-nickel NC(M)A cathode materials, supplying Samsung SDI, SK On, and power-tool battery customers, while the parent company drives vertical integration in lithium refining, precursors, and recycling.
- Weaknesses
- Aggressive capacity expansion, relatively limited contract duration, oversupply risk for ternary cathodes over the next decade, and declining cash returns since 2022.
- Comparison
- Relative valuation is considered high, and risk-reward is weaker than LGES and LG Chem.
- Risks
- Declines in cathode material prices and utilization, lower-than-expected customer demand, and valuation compression.
- L&FNeutral-rated name within coverage
- Strengths
- One of the world's leading ternary cathode material suppliers, benefiting from ultra-high-nickel utilization, 46-series related orders, and North American ESS cathode demand, with target price raised to W139,000.
- Weaknesses
- High-nickel sales may slow in the second half due to competitor entry, weak U.S. EV demand leads to soft overall utilization, and long-term LFP returns may face commoditization risk.
- Comparison
- ESS and scarce non-China LFP supply support short-term earnings, but uncertainty around long-term returns limits the rating.
- Risks
- Intensifying high-nickel competition, ESS order realization below expectations, and declines in LFP prices and margins.
Key data
- U.S. 2030 battery storage TAMAbout 170GWh/year, versus previous about 110GWh/yearIncludes opportunities from behind-the-meter storage and 800VDC data center electrical architecture.
- Behind-the-meter storage capacity assumptionAbout 30GW of BTM capacity in 2030Between the utilities team's 20GW estimate and more optimistic industry views of over 40GW.
- U.S. power demand CAGR assumptionAbout 3.2% in 2024-2030E, versus previous about 2.6%Mainly driven by rising data center demand.
- LGES utilization pathRising from about 42% in FY26E to about 67% in FY28EESS demand and new product orders improve visibility for utilization recovery.
- LGES target priceW520,000, versus previous W410,000Rating upgraded from Neutral to Buy.
- Samsung SDI target priceW695,000, versus previous W410,000Rating downgraded from Buy to Neutral; target price raised but valuation is already more fully reflected.
- Earnings revisions for Korean cell and cathode companies2026E/2027E/2028E average +6%/+1%/+2%Reflecting higher ESS TAM, 1Q earnings, USD/KRW assumptions, and chemical margin adjustments.
- Average target price increaseAbout 37% on average for cell and cathode material companiesMainly driven by higher long-term ESS demand and rolling the valuation base forward to the average of 2027E/2028E.
- U.S. BEV penetrationAbout 6%, below the September 2025 peak of about 12%U.S. EV demand momentum has slowed significantly, and the outlook for removal of tax credits adds pressure.
- European BEV penetrationAbout 18%-21% year to date in 2026European demand is relatively resilient, but competition from the Chinese supply chain remains strong.
Impact & implications
The key investment implication of this report is not a broad upward revision for the battery sector, but a shift in market focus from a single EV demand perspective to a divergence between EV and ESS demand. ESS, especially data center-related behind-the-meter storage, may provide Korean battery makers with higher-margin and more stable incremental demand, but weak U.S. EV demand and industry oversupply still limit overall sector upside. LGES sees improved risk-reward due to valuation pullback, a higher ESS mix, and expanding new product orders; Samsung SDI turns Neutral because valuation premium, strong outperformance, and positive fundamentals have already been substantially priced in.
Risks
- U.S. EV demand remains persistently weak, with BEV penetration and total cost of ownership improving more slowly than expected.
- ESS and behind-the-meter storage demand have been raised, but may still be insufficient to absorb medium-term oversupply in the U.S. battery market.
- Price and cost competition from Chinese battery and materials suppliers in Europe remains intense.
- LGES ramp-up of new EV/ESS production lines below expectations would pressure operating leverage and margins.
- There is execution uncertainty around assumptions for 800VDC data center architecture, BTM renewable-energy pairing ratios, and storage duration.
- IRA tax credits, import tariffs, European localization policies, and regulatory delays may alter demand and profit distribution.
- KRW/USD exchange-rate volatility will affect KRW-reported earnings for USD-denominated contracts.
What to watch
- Whether U.S. data center power demand and grid interconnection bottlenecks continue to push up BTM storage orders.
- Progress toward LGES's roughly 50GWh ESS capacity target by end-2026 and increasing revenue mix toward the mid-30% range.
- New orders for LGES 4680, LFP, and mid-nickel high-voltage batteries among European OEMs.
- Whether U.S. BEV penetration recovers from about 6%, and whether total cost of ownership reaches a more attractive tipping point in 2027-2028.
- Whether Samsung SDI's tab-less cylindrical small-battery line ramp-up and customer diversification can support earnings.
- Whether European OEM supply-chain diversification and local battery ecosystem policies continue to benefit Korean battery makers.
- Whether ESS margins remain in the low- to mid-teens OPM range, or normalize due to competition and ramp-up costs.