Was the secondary battery industry a bubble? While it is difficult to argue that the potential of the industry itself was a bubble, it is true that expectations for the rapid onset of the electric vehicle era were overly reflected in corporate valuations and production capacities. The current stagnation appears to be more of a process of aligning excessive expectations with reality rather than the end of the industry.
At one point, secondary batteries were seen as a 'gold mine.' From 2020 to 2023, as electric vehicle sales surged, the market anticipated a looming battery shortage. Global automakers rushed to set ambitious electric vehicle sales targets, and governments worldwide incentivized investments with subsidies and tax benefits. Battery manufacturers and material companies expanded their factories under the assumption that demand would continue to rise, reflecting even unrealized future profits in their valuations.
However, electric vehicle demand did not grow as quickly as expected. High interest rates, expensive vehicle prices, a lack of charging infrastructure, and battery explosion incidents delayed consumer purchases, prompting automakers to adjust their electric vehicle investments and launch schedules. As demand slowed, the previously expanded production capacity became a burden. With lower operating rates and accumulating inventory, battery companies found themselves in the so-called 'chasm.'
The sharp decline in raw material prices in 2023 further exacerbated the situation. The slowdown in electric vehicle demand and oversupply led to falling prices for lithium and nickel, which in turn caused a drop in the selling prices of battery materials and cells. Particularly, cathode material companies faced inventory valuation losses as the value of raw materials and stockpiles acquired at high prices decreased, leading to worsened sales and profitability despite maintaining or increasing sales volumes.
Meanwhile, Chinese companies expanded their market dominance with large-scale production capacities and low-cost LFP batteries. Unlike domestic companies that focused on high-performance nickel-rich batteries, Chinese firms quickly captured the mid-range electric vehicle and ESS markets using price competitiveness. As the electric vehicle market shifted from high-end models to more affordable options, the strategic weaknesses of the South Korean battery industry became apparent.
Amid the prolonged chasm, a breakthrough has emerged. ESS and AI data centers are becoming new demand sources. To stabilize the power grid and reliably supply power to AI data centers, large-scale battery facilities are necessary. The battery demand, previously concentrated on electric vehicles, is beginning to expand to power grids, data centers, UPS, and BBU.
The three major domestic battery companies recorded profits in the second quarter of this year, which is not unrelated to these changes. The expansion of ESS sales and demand from AI data centers contributed to improved performance. However, it is premature to conclude that this marks a complete revival of the battery industry. Much of the profit turnaround can be attributed to policy-driven and one-time factors such as North American production subsidies, tariff refunds, and customer compensation. More important than the mere transition to profitability is whether they can generate stable profits excluding subsidies.
ESS and AI data centers are not saviors that will instantly rescue the battery industry but rather new pillars that broaden the demand landscape. Even if the recovery of the electric vehicle market is delayed, if battery companies can generate profits in the power grid and data center markets, their resilience will strengthen. Conversely, if they fail to secure price competitiveness and technological prowess in these new markets, there is a risk of repeating past expectations.
The era when secondary batteries were unconditionally highly valued simply for being a future industry has passed. The market is now questioning not the growth potential but the actual ability to generate profits. The test to confirm whether the true competitiveness remains after the bubble has burst is just beginning.
* This article has been translated by AI.
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