Google ESS order and Korea AI ESS tender provide a modest positive catalyst for K-battery

Overview

This report focuses on the latest order developments for Korean battery companies in the ESS energy storage field. LGES is reportedly set to supply a 2.9GWh-class ESS system for a U.S. solar-plus-storage project involving Google; meanwhile, Korea's first government AI-driven distribution-grid ESS support project allocated 640MWh of orders to three K-battery companies. The report views these developments as modestly positive for the sector, but argues that the orders themselves are insufficient to form the core investment thesis, with the earnings inflection, U.S. ESS capacity ramp, disposal of idle battery assets, and improved energy-business profitability being more important.

Core views

The core views include: first, LGES's Google ESS project validates the commercial capability of its Gen II LFP ESS system in large-scale North American storage applications; second, Korea's AI ESS tender shows that domestic storage demand is still being released, and the third batch of KPX central ESS orders may be announced in September and could be larger in scale; third, LGES's U.S. ESS production in the first half was constrained by bottlenecks, but with Ultium Tennessee switching to LFP ESS production and the onboarding of a second packaging company, shipments in 2H26 are expected to improve; fourth, against the backdrop of easing battery drag and strong refining and lubricant earnings, SK Innovation was reiterated as OW by J.P. Morgan and selected as its top K-energy pick.

Analysis framework

The report uses an event-driven industry comparison framework, combining analysis of ESS orders, government tender share, capacity conversion progress, corporate earnings structure, and relative stock performance. For LGES, it focuses on assessing the Google project, LFP ESS products, safety certification, and the recovery of U.S. ESS shipments; for SK Innovation, it focuses on assessing lower battery capex, asset optimization, and support from refining and lubricant profits for FY26-27 net profit; for Samsung SDI and SK On, it conducts horizontal comparisons through their respective shares in the Korea AI ESS tender.

Methodology notes

• Industry event researchOrder and tender share analysis

  Assess corporate competitive positioning and demand validation through large ESS orders and government tender allocations.

  The report uses the Google 2.9GWh ESS project, Korea's 640MWh AI ESS tender, and expectations for follow-on KPX central ESS orders to judge short-term catalysts and medium-term demand opportunities for Korean battery companies in the storage market.

• Relative investment preferenceBattery cells preferred over battery materials

  Compare orders, earnings improvement, and asset burden within the same value chain to form sub-sector preferences.

  J.P. Morgan explicitly states that it prefers battery cells over battery materials and names SK Innovation as its top pick within K-energy.

• Earnings inflection analysisCapacity utilization and asset monetization

  Winning orders alone is not a sufficient condition; it is necessary to observe easing capacity bottlenecks, reuse or sale of idle assets, and margin improvement.

  The report points out that investors are mainly focused on turning profitable and the reuse, sale, or monetization of idle battery assets, rather than merely on order wins.

Asset mapping & comparison

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

• LG Energy Solution 373220.KS

  Core beneficiary, having won the Google ESS project and a 140MWh order in the Korea AI ESS project

  Strengths

  Gen II LFP ESS system enters large-scale solar-plus-storage projects in North America; enhanced safety design meets UL9540A and Large-Scale Fire Testing requirements; U.S. ESS shipments are expected to recover in 2H26.

  Weaknesses

  1H26 ESS production was below expectations, with production bottlenecks; earnings improvement still requires capacity ramp-up and realization of scale effects.

  Comparison

  Compared with Samsung SDI, LGES has received more direct validation from a large overseas ESS project through the Google project; compared with SK Innovation, its investment thesis is more centered on the recovery in ESS battery shipments.

  Risks

  Delays in project construction timing, ESS capacity conversion falling short of expectations, stricter thermal runaway safety requirements, and failure to approach breakeven excluding AMPC in 4Q26.

• SK Innovation 096770.KS

  J.P. Morgan's top pick within K-energy; SK On won about a 13% share in the Korea AI ESS tender

  Strengths

  Battery cash burn has stopped or declined, and battery assets are being sold and optimized; refining and lubricant earnings are strong, and J.P. Morgan expects 2Q performance to be significantly better than market consensus.

  Weaknesses

  Its share price had previously been dragged down by the battery business; disposal and optimization of battery assets still need to be executed.

  Comparison

  The report says SK Innovation has been undervalued or has underperformed SDI and LGES by 150% and 13%, respectively, since 2Q25, and it was recently upgraded to the top K-energy pick.

  Risks

  A downturn in refining and lubricant conditions, slower-than-expected asset sale progress, and the battery business consuming cash again.

• Samsung SDI 006400.KS

  Largest share winner in the Korea AI ESS project

  Strengths

  Won 420MWh, or about 66.1%, of the Korea AI ESS project share, and supplies NCA ESS batteries to multiple operators.

  Weaknesses

  The report devotes less discussion to it than to LGES and SK Innovation, with the main investment catalyst coming from its tender share.

  Comparison

  Its share in the Korea AI ESS tender is higher than that of LGES and SK On.

  Risks

  Government project delivery risk, fluctuations in NCA ESS demand, and intensifying industry competition.

• S-Oil Corp 010950.KS

  Relative comparison target within K-energy

  Strengths

  The refining-related earnings environment provides support for the energy sector.

  Weaknesses

  The report shifts preference to SK Innovation as the better choice.

  Comparison

  SK Innovation has significantly underperformed S-Oil historically, and the report uses this to emphasize that SK Innovation offers a more attractive risk-reward profile.

  Risks

  Refining cycles, compensation funds, and changes in margin assumptions.

Key data

• LGES Google ESS project size2.94GWh designed battery storage capacity, initially 2.0GWh, expanding to about 2.9GWh upon full operationThe project is the Steel River Energy Center, located in Mississippi and Arkansas, with full commercial operation targeted for 2029.
• Total size of Korea AI ESS project640MWh2026 AI-powered ESS deployment support project, with a 5-hour storage duration, planned through December 2029.
• Samsung SDI share in Korea AI ESS project420MWh, about 66.1%Samsung SDI will supply NCA ESS batteries to 6 of the 9 operators.
• LGES share in Korea AI ESS project140MWh, about 21.8%LGES won the largest order as a single operator.
• SK On share in Korea AI ESS project80MWh, about 12.5% to 13%Both the report title and body emphasize that SK On won about a 13% share of the tender.
• Korean government 2035 ESS installation target25GWhFrom Figure 1 of the report.
• LGES U.S. ESS shipment forecast10.6GWh in 1H26, expected to rise to 19.4GWh in 2H26J.P. Morgan expects scale effects to help LGES approach breakeven excluding AMPC by 4Q26.
• Third batch of KPX central ESS ordersPossibly about 3.2GWh, expected to be announced in September 2026The report says industry observers believe the third batch may be larger than the first and second batches.
• Covered companies and ratingsLG Energy Solution, S-Oil, SK Innovation, and Samsung SDI are all rated OWPrices are as of the close on July 16, 2026.

Impact & implications

In terms of investment implications, ESS demand and the growth in power consumption from large data centers provide a new growth narrative for Korean battery companies, especially benefiting LGES, which has the capability to deliver LFP ESS systems in North America. However, the report remains restrained on the order catalyst, arguing that further stock re-rating requires validation through improved earnings and reduced asset burdens. The significance of SK Innovation is that, after the drag from its battery business eases, refining and lubricant profits may make its FY26-27 net profit more attractive than those of the three K-battery companies.

Risks

• Easing of LGES's U.S. ESS production bottlenecks falls short of expectations, causing the anticipated 2H26 shipment recovery to fail to materialize.
• The phased construction schedule of the Google Steel River project or the full commercial operation timeline for 2029 is delayed.
• The size or announcement timing of Korea's third batch of KPX central ESS orders comes in below market expectations.
• Investors continue to focus on the earnings inflection rather than order wins, limiting the share-price boost from order news.
• SK Innovation's refining and lubricant earnings fall short of J.P. Morgan's expectations, weakening its top-pick K-energy thesis.
• The progress of reuse, sale, or monetization of battery assets is slower than expected.

What to watch

• The announcement timing, size, and award allocation of Korea's third batch of KPX central ESS orders in September 2026.
• The ramp-up of LGES Ultium Tennessee LFP ESS supply and the restart progress of the Warren EV plant in August 2026.
• Whether LGES U.S. ESS shipments in 2H26 rise from 10.6GWh in 1H26 to 19.4GWh.
• Whether LGES can approach breakeven excluding AMPC in 4Q26.
• Whether refining and lubricant profits in SK Innovation's 2Q results are significantly above consensus.
• The actual progress of SK Innovation's battery asset sale, optimization, or reuse.