Europe electrification and global energy storage are dual growth drivers, while U.S. NEVs and South Korean materials segments face pressure

Overview

The report combines July 2026 global NEV sales and penetration data, second-quarter earnings from OEM and battery value-chain companies, and energy storage supply-chain orders and capacity information to conclude that global electrification shows clear regional divergence. Europe continues to be the main engine of penetration growth. China's NEVs are more resilient than traditional passenger vehicles, but macro demand remains weak, while the U.S. market remains sluggish. At the same time, energy storage battery shipments, orders, and data center demand remain in high-growth mode, providing battery companies with a second growth curve.

Core views

First, NEV sales in five European countries grew 52% YoY, with penetration improving especially significantly in Germany, France, and the United Kingdom, making Europe's electrification trend still the strongest. Second, China's combined penetration has reached 63%, but total passenger vehicle sales are declining and consumer confidence is insufficient, so policy support is more likely to provide a floor than drive a cyclical reversal. Third, U.S. NEV sales and penetration continued to decline YoY, and automakers are responding to weak demand by reducing capacity, controlling production, and lowering losses. Fourth, global energy storage demand remains in a high-prosperity phase, and Korean battery companies are actively expanding local capacity in the U.S., though some projects face manufacturing ramp-up and delivery timing disruptions. Fifth, battery manufacturers have stronger pricing power and execution certainty than materials companies, while intensifying competition in South Korean cathode materials may compress medium-term margins.

Analysis framework

The report uses YoY and MoM comparisons of regional sales and penetration, combines second-quarter earnings call information from OEM, battery, materials, and energy storage companies for value-chain cross-validation, and forms relative allocation judgments through comparisons of market share, orders, capacity planning, profitability, and forward valuation.

Methodology notes

• Industry demand analysisRegional penetration and sales trend comparison

  Identify regional differences in business momentum through YoY and MoM changes in NEV sales, total passenger vehicle sales, and penetration rates.

  Europe, China, and the United States respectively represent three market states: high growth, high penetration but moderate demand, and demand contraction, helping assess regional exposure for OEM and battery demand.

• Fundamental analysisEarnings call cross-validation

  Use earnings, guidance, orders, and capacity comments from OEM, battery, materials, and energy storage companies to validate industry data.

  The focus is on distinguishing one-off earnings impacts, short-term manufacturing ramp-up issues, and structural demand or competitive changes, avoiding trend judgments based solely on single-quarter profits.

• Value-chain analysisComparison of pricing power and execution capability

  Compare the relative positions of OEMs, battery manufacturers, and materials suppliers in customer structure, capacity utilization, technological barriers, and price negotiations.

  The report believes battery manufacturers' pricing power and execution certainty are overall superior to Korean materials companies, which face risks from dual sourcing, share changes, and margin compression.

• Relative valuationForward valuation and earnings growth comparison

  Conduct horizontal comparisons of FY26E and FY27E P/E ratios, enterprise value multiples, sales growth, and margins.

  Valuation comparisons and fundamental trends are used together to screen for companies with technological leadership, global expansion, and earnings delivery capabilities, rather than simply selecting the lowest-valuation targets.

Asset mapping & comparison

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

• BYD-A/H (002594.SZ, 1211.HK)

  Core beneficiary among Chinese NEV OEMs; OW maintained.

  Strengths

  Strong global execution capability, continued overseas capacity ramp-up, and advantages from vertical integration of vehicles and batteries.

  Weaknesses

  Overall demand for passenger vehicles in China is weak, while domestic competition and pricing pressure remain high.

  Comparison

  Compared with most Chinese OEMs, its overseas expansion and scaled execution capabilities are more prominent.

  Risks

  Overseas trade barriers, capacity ramp-up falling short of expectations, and intensifying domestic price competition.

• CATL-A/H (300750.SZ, 3750.HK)

  Global leader in power and energy storage batteries; OW maintained.

  Strengths

  Outstanding technology, scale, and global market leadership; energy storage demand provides incremental growth, and management remains confident in demand sustainability in 2027.

  Weaknesses

  Second-quarter unit gross profit or gross margin declined somewhat, and customer price negotiations may cause short-term earnings volatility.

  Comparison

  Compared with Korean and other Chinese battery companies, it has stronger global share, technology coverage, and synergies between power batteries and energy storage.

  Risks

  Changes in consumption tax and VAT rebate policies, price competition, overseas regulation, and trade restrictions.

• LG Energy Solution and Samsung SDI (373220.KS, 006400.KS)

  Preferred direction in the Korean battery value chain; both maintained at OW.

  Strengths

  Actively expanding U.S. energy storage business, with long order coverage; European battery demand and cylindrical battery demand are better than expected.

  Weaknesses

  U.S. NEV demand is weak, and some plants are still in the stages of restarting production or ramping LFP energy storage lines.

  Comparison

  Compared with Korean cathode materials suppliers, battery manufacturers have stronger pricing power, customer coverage, and business execution capabilities.

  Risks

  Insufficient capacity utilization, delays in energy storage projects, U.S. localization costs, and technology ramp-up risks.

• Hyundai Motor and Kia (005380.KS, 000270.KS)

  Preferred Korean auto names; both maintained at OW.

  Strengths

  A rising share of hybrid models supports earnings resilience for vehicles, and the companies maintain share competitiveness in some overseas markets.

  Weaknesses

  U.S. BEV sales remain under pressure, and the companies are sensitive to the global auto cycle and regional policies.

  Comparison

  Compared with companies with higher BEV exposure, the hybrid product mix provides a stronger earnings buffer.

  Risks

  Further weakening of U.S. demand, tariff and policy changes, and intensifying global competition.

• Korean cathode materials companies

  Overall cautious; OW maintained on L&F and LG Chem, UW maintained on Ecopro BM and POSCO Future M.

  Strengths

  L&F has product positioning in high-nickel NCM and LFP; LG Chem is re-entering Tesla's supply chain; POSCO Future M may benefit from deferred demand returning.

  Weaknesses

  Intensifying competition, customer dual sourcing, inventory losses caused by falling lithium prices, and initial costs for new production lines.

  Comparison

  POSCO Future M may gain share in Samsung SDI's energy storage cathode materials, while Ecopro BM's serviceable market and earnings outlook are relatively under pressure.

  Risks

  Declines in cathode materials prices and margins, insufficient U.S. and European NEV demand, and LFP capacity expansion execution falling short of expectations.

• U.S. energy storage and data center power supply chain

  Long-term demand is positive, but short-term execution is divergent.

  Strengths

  Energy storage orders and backlog have reached record highs, data center customer demand is strong, Tesla's energy storage deployments continue to grow, and Vertiv raised full-year guidance.

  Weaknesses

  Fluence is affected by contract manufacturing line ramp-up, new product deployment costs, and revenue recognition timing.

  Comparison

  Tesla and Vertiv have relatively robust capacity and operational execution, while Fluence has weaker short-term earnings and delivery certainty.

  Risks

  Manufacturing ramp-up delays, supply-chain bottlenecks, phased project execution, and gross margin recovery slower than expected.

Key data

• July NEV sales in major global marketsAbout 1.3 million unitsAggregate of five European countries, the U.S., and China, up 2% YoY and down 6% MoM.
• July NEV penetration in major global marketsAbout 37%Up about 4 percentage points YoY and about 1 percentage point MoM.
• July NEV sales growth in five European countriesUp 52% YoYPenetration of about 36%, up about 11 percentage points YoY.
• U.S. July NEV marketSales down about 38% YoY, penetration 7%Penetration down 4 percentage points YoY and flat MoM.
• China July retail sales of new energy passenger vehiclesAbout 1 million unitsDown 9% YoY and up 6% MoM, with combined penetration at 63%.
• Global energy storage battery shipments in the first half508GWhUp 98% YoY, with full-year forecast at 1.1TWh.
• Tesla second-quarter energy storage deployments13.5GWhUp 41% YoY, supported by deployments in Europe, the Middle East, and Africa and the ramp-up of the Shanghai Megafactory.
• Samsung SDI U.S. energy storage order coverageAbout 3 to 4 years of local capacityJPMorgan estimates this corresponds to about 60 to 90GWh, with potential for further capacity expansion.
• Fluence data center-related ordersAbout US$850 million as of JulyIncluding its first behind-the-meter energy storage order and a project with a large cloud service customer.
• Asian NEV value-chain performance over the past monthSouth Korea up 13%, China up 6%, Japan down 9%Among subsectors, anodes and cathodes led, while battery foil performed the weakest.

Impact & implications

Regional divergence means the global NEV value chain is unlikely to see a synchronized recovery. Companies' regional revenue mix, energy storage exposure, and ability to localize capacity will determine earnings resilience. European demand benefits local OEMs and battery companies with product supply and market share expansion capabilities. Weak U.S. NEV demand will continue to weigh on relevant capacity utilization, but energy storage and data center power demand can partially offset this. Chinese leaders are still expected to gain share through technology, cost, and overseas expansion capabilities, while Korean materials companies face higher earnings downgrade risk amid intensifying competition and customer dual sourcing.

Risks

• U.S. NEV demand and penetration decline further, putting pressure on OEM and battery capacity utilization.
• Chinese consumer confidence remains insufficient, and policy can only provide a floor rather than drive a demand reversal in the second half.
• Changes in European subsidies, emissions rules, or NEV incentive policies weaken current growth momentum.
• Competition and dual sourcing intensify in South Korea's cathode materials industry, leading to share losses and margin compression.
• Manufacturing ramp-up, supply-chain bottlenecks, or delivery timing delays in energy storage projects push back revenue and profit recognition.
• Volatility in raw material prices such as lithium causes inventory losses and affects materials companies' pricing and profitability.
• Changes in overseas tariffs, taxes, VAT rebates, and localization policies affect global supply-chain layouts.

What to watch

• Whether NEV penetration in the five European countries can maintain a double-digit percentage-point YoY improvement.
• Whether U.S. NEV sales, inventory, and incentive policies show signs of bottoming.
• Chinese consumer confidence in the second half, total passenger vehicle sales, and the magnitude of MoM improvement in NEVs.
• Whether global monthly energy storage battery production can continue MoM growth of about 3% to 4%.
• Third-quarter ramp-up and fourth-quarter sales acceleration of Korean battery companies' U.S. LFP energy storage lines.
• Whether Fluence's manufacturing issues are indeed timing disruptions, and the pace at which backlog converts into revenue and gross profit.
• Changes in CATL's unit gross margin and 2027 demand guidance.
• Customer share, LFP expansion progress, and margin trends at Korean cathode materials companies.