Accelerating Expansion of Korea's ESS Market and Emerging Upside Catalysts at EV Cycle Trough

Overview

The report highlights that South Korean battery manufacturers benefit from structural growth in the U.S. ESS market, with expected shares increasing from 10% in 2025 to 63% by 2028. Additionally, signs indicate an end to the trough phase of the EV demand cycle, with improved supply-demand dynamics. This results in raised price targets for Samsung SDI and LGES by 73% and 10% respectively.

Core views

The U.S. ESS market is structurally shifting towards Korean suppliers due to localized production, geopolitical risk considerations, and policy support including tariffs, AMPC, and ITC. The OBBBA Act imposes a 43.4% tariff on Chinese batteries while offering a 30% investment tax credit, giving manufactured-in-the-US Korean batteries a total cost advantage of 16% over Chinese counterparts. This leads to projected increases in the U.S. market share of Korean-made ESS from 10% in 2025 to 63% by 2028. Signs point to the end of the EV demand cycle trough, where high oil prices improve electric vehicle Total Cost of Ownership (TCO), and supply discipline alleviates oversupply. Small battery businesses are projected to turn profitable by 2026. Expected operating profit growth between 2026-2028 is forecasted at 44%/23% for Samsung SDI and 17%/12% for LGES. Samsung SDI stands out as the core beneficiary of the ESS sector due to accelerated LFP capacity conversion and revival in the small battery segment. LGES benefits from increased orders for cylindrical cells and expansion of its ESS manufacturing capabilities supporting earnings improvement.

Analysis framework

Institutions employ a supply-demand framework to analyze ESS market growth, assessing changes in Korean supplier market shares in the U.S. and Europe using policies like the OBBBA Act and EU IAA. By modeling capacity conversions from EV to ESS, order growth, and policy advantages, they derive turning points in profitability, focusing on how ESS cost advantages and market share gains drive profits.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Structural growth in ESS demand and relief from EV supply glut jointly drive market dynamics

  The supply-demand framework analyzes shifts in demand (expansion of ESS) and supply (conversion of capacity) to determine industry inflection points and realignment of market shares, serving as a core method for trend analysis in industries.

Asset mapping & comparison

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

• Samsung SDI (006400.SS)

  Core beneficiary of structural ESS market growth, accelerating LFP capacity conversion

  Strengths

  ESS revenue占比 rises to 37% by 2027e, turnaround in small battery profitability, SDC equity disposal

  Weaknesses

  Short-term pressure on EV battery division

  Comparison

  Faster ESS business growth and earlier recovery in small batteries compared to LGES

  Risks

  Changes in U.S. tariff policy, underperformance of EV demand

• LGES (373220.SS)

  High-beta play on EV cycle recovery, rapid expansion in ESS capacity

  Strengths

  Growing orders for cylindrical cells (440GW+), ESS capacity target set at 50GW+ by 2026e

  Weaknesses

  Higher volatility in EV operations

  Comparison

  Faster ESS capacity conversion and greater stock price sensitivity to EV business fluctuations compared to Samsung SDI

  Risks

  Delays in implementation of EU IAA policy, rising份额 of Chinese LFP batteries

Key data

• ESS Share (U.S.)2025e 10% → 2028e 63%Market penetration rate for 2025-2028 estimates
• Price TargetSamsung SDI 900,000 KRW (+73%)Upgraded from 520,000 KRW
• Price TargetLGES 550,000 KRW (+10%)Upgraded from 500,000 KRW

Impact & implications

Expansion in the ESS market will offset gaps in EV demand, aiding recovery in profitability for South Korean battery makers. With continued share gains driven by U.S. policies, expected operating profit growth for Samsung SDI and LGES between 2027-2028 is estimated at 44%/23% and 17%/12% respectively. Industry cycles have bottomed out, with both revenue and earnings for 2026-2028 projected to increase across the board.

Risks

• Reduction in tariffs on Chinese batteries by the U.S. affecting Korean competitiveness
• Delayed implementation of EU IAA policy impacting market penetration in Europe

What to watch

• Progress in ESS order intake and capacity conversion
• Improvement in EV sales data
• Implementation timeline of EU IAA policy