Sentiment toward Korean battery stocks may be at an inflection point, with HSBC favoring Samsung SDI and seeing LGES catch up

Overview

This report covers the Korean EV/ESS battery supply chain and companies such as Samsung SDI, LG Energy Solution, SK Innovation, and LG Chemical. The core view is that the EV battery cycle is bottoming, while ESS demand, especially in the U.S. market and AI data-center-related storage demand, is forming a new structural upcycle. While lowering earnings expectations for EV batteries, the report raises forecasts related to ESS and emphasizes that market sentiment may shift from risk aversion to focusing on price recovery, order improvement, and catch-up opportunities.

Core views

HSBC believes there are four industry-level catalysts: rising metal prices driving battery price increases, higher oil prices improving EV relative total cost of ownership and potentially boosting sales, OEMs possibly compensating for committed volumes that are underutilized, and AI data center expansion generating new ESS orders. At the company level, Samsung SDI most clearly reflects the ESS transition and recovery in small-battery profitability, while LGES could catch up as EV sentiment improves; SK Innovation is constrained by ESS execution and structural issues in refining/batteries, and LG Chemical is pressured by petrochemical spreads, cathode material demand, and LGES earnings downgrades.

Analysis framework

The report combines industry cycle assessment, policy and geopolitical supply-chain analysis, ESS project capital expenditure comparisons, the impact of oil and metal prices on demand and margins, and company-level DCF or SOTP valuation frameworks. The focus is not a single quarter's earnings, but the rebalancing between EV bottoming and structural ESS growth.

Methodology notes

• Valuation methodsDCF

  discounted cash flow valuation

  The target prices for Samsung SDI and LGES are based on a DCF framework, reflecting medium- to long-term earnings, capital expenditure, and discounting assumptions.

• Valuation methodsSOTP

  sum-of-the-parts valuation

  SK Innovation's target price uses an SOTP framework to reflect the value of refining, petrochemicals, batteries, and changes in net debt across different businesses.

• industry_analysisTCO and project capex comparison

  ESS project economics comparison

  The report compares total project capital expenditures for Korean batteries manufactured in the U.S. versus a China-manufactured alternative, concluding that U.S.-made Korean batteries are attractive given policy support and supply security.

• cycle_analysisEV cycle bottoming and ESS upcycle

  EV bottoming and ESS upcycle

  The report combines EV demand, supply discipline, battery prices, oil prices, policy incentives, and data-center storage demand to assess a shift in industry sentiment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung SDI (006400 KP)

  Top Korean battery pick, rated Buy, target price KRW520,000

  Strengths

  Clear positioning in the ESS transition, small batteries are expected to turn profitable in 2026e, demand for BBU and UPS is strong, the balance sheet is improving, and monetization of Samsung Display's 15.2% stake could improve market perception.

  Weaknesses

  EV demand remains weak, ESS momentum is more back-end loaded, and earnings recovery depends on order conversion and price pass-through.

  Comparison

  Compared with LGES, SDI has had stronger share-price performance over the past six months and more directly reflects the ESS transition theme.

  Risks

  OEM compensation falls short of expectations, ESS orders are delayed, metal price pass-through fails, or EV shipments recover more slowly than expected.

• LG Energy Solution (373220 KP)

  Catch-up play, rated Buy, target price KRW500,000

  Strengths

  Higher sensitivity to EV demand; if higher oil prices boost EV sales and market sentiment improves, the stock may catch up. ESS transition is progressing, and a 40% capex cut strengthens profitability and cash flow discipline.

  Weaknesses

  EV battery business remains weak, 2026e/2027e operating profit forecasts were cut, and AMPC and ESS customer sharing weigh on margins.

  Comparison

  Compared with SDI, LGES has significantly underperformed over the past six months, and the report sees room for catch-up.

  Risks

  U.S. EV shipments are weaker than expected, ESS customer concessions widen, capex cuts affect long-term capacity, or consensus earnings continue to be revised down.

• SK Innovation (096700 KP)

  Cautious name, rated Reduce, target price KRW70,000

  Strengths

  Tensions in the Middle East and disruptions in the Strait of Hormuz may temporarily lift refining margins and inventory gains; battery business restructuring lowers net debt.

  Weaknesses

  ESS faces execution challenges in R&D, production, capacity conversion, scaling, and stable supply; SK On's structural burden remains heavy.

  Comparison

  Compared with SDI and LGES, SKI has a lower realizable upside from the ESS narrative.

  Risks

  Persistently high oil prices squeeze margins and dampen demand, battery margin breakeven is delayed, petrochemical spreads narrow, and there is no clear guidance on new ESS projects or LFP sourcing.

• LG Chemical (051910 KP)

  Neutral to cautious name, rated Hold, target price KRW350,000

  Strengths

  Potential upside comes from a clearer value-unlocking plan, higher shareholder returns, non-captive customer cathode orders, and progress in ESS LFP and low-cost EV cathode materials.

  Weaknesses

  Core petrochemical operations are under structural pressure and Middle East risk, while cathode shipments are affected by the cancellation of the LGES JV and the suspension of some U.S. EV battery lines.

  Comparison

  Compared with pure-play battery exposure, LG Chemical also bears petrochemical and raw material price volatility.

  Risks

  Rising naphtha and LNG prices compress spreads, LGES earnings downgrades spill over, cathode demand recovers slowly, and value-unlocking expectations are already partially priced in.

• Korean ESS battery suppliers overall

  Structural beneficiary of the U.S. ESS market

  Strengths

  Localized capacity, geopolitical supply security, tariffs, AMPC, and ITC policy support improve relative attractiveness, while AI data center expansion drives new storage demand.

  Weaknesses

  Chinese manufacturers still dominate the global ESS battery market, and if they cut prices or shift production to Southeast Asia, Korean suppliers' cost advantage may weaken.

  Comparison

  The report likens the current tilt of the U.S. ESS market toward Korean manufacturers to the EV upcycle driven by the IRA in 2022-23.

  Risks

  Policy changes, delays in U.S. projects, price competition from Chinese supply chains, and slower-than-expected capacity conversion.

Key data

• Report Date2026-04-03Market data is as of the 2026-03-30 close unless otherwise stated in the report.
• Cost advantage of U.S.-made Korean ESS batteriesTotal ESS project capital expenditure is 16% lower than a China-manufactured alternativeThe advantage comes from localized production, tariffs, AMPC, ITC, and supply security factors.
• Samsung SDI rating and target priceBuy, KRW520,000DCF target price maintained; the report believes quarterly operating profit bottomed in Q3 2025.
• LG Energy Solution rating and target priceBuy, KRW500,000Target price lowered from KRW520,000; 2026e/2027e operating profit forecasts cut by 26%/36%, respectively.
• LGES capex planPlanned capital expenditure cut by 40%The report sees this as a signal of a shift from scale expansion toward profitability and free cash flow priority.
• SK Innovation rating and target priceReduce, KRW70,0002026e operating profit is raised by 8%, but 2027e operating profit is cut by 52% due to delayed battery margin recovery and narrowing petrochemical spreads.
• LG Chemical rating and target priceHold, KRW350,000Target price lowered from KRW400,000; 2026e/2027e operating profit forecasts cut by 84%/57%, respectively.
• HSBC overall rating distributionBuy 57%, Hold 37%, Sell 6%HSBC independent rating distribution as of 2025-12-31.

Impact & implications

The report's investment implication is to be selectively long Korean battery chains rather than broadly bullish. Rising ESS demand and a recovery in EV sentiment may stabilize sector valuations and earnings expectations, but each company's execution ability, business mix, and raw material exposure will determine share-price upside. Samsung SDI and LGES are better positioned to benefit from ESS and improving EV sentiment; SK Innovation and LG Chemical need more evidence on ESS execution, value realization, non-captive customer orders, and easing cost pressure.

Risks

• EV demand recovers more slowly than expected, and higher oil prices fail to translate into improved EV sales.
• Chinese battery makers cut prices or build new production bases in Southeast Asia, weakening the economic advantage of Korean ESS suppliers.
• ESS order wins, capacity conversion, LFP sourcing, and stable supply execution fall short of expectations.
• Rising metal prices cannot be passed through smoothly into battery prices, or instead compress margins.
• Middle East conflicts push up naphtha, LNG, and crude oil prices, squeezing petrochemical and refining spreads.
• OEM compensation is insufficient or low-utilization committed volume issues persist, affecting battery makers' earnings recovery.
• AI data center storage demand is realized more slowly than the market expects.

What to watch

• New ESS orders from Korean battery makers, especially projects related to U.S. data centers, BBU, and UPS.
• Whether U.S. monthly EV sales improve as gasoline prices rise.
• The extent of battery price adjustments and margin pass-through after metal prices rise.
• Whether OEMs provide meaningful compensation for underused committed purchase volumes.
• LGES free cash flow after the capex cut, ESS capacity guidance, and AMPC sharing arrangements.
• SK Innovation's specific guidance on ESS capacity conversion, new projects, LFP sourcing, and the path to profitability at SK On.
• LG Chemical's progress on value unlocking, shareholder returns, non-captive cathode customer orders, and low-cost material development.