Tesla boom supercharges stock of world's biggest EV battery firm

[SEOUL] The global frenzy for electric vehicles (EV) that has seen Tesla's stock surge threefold is now juicing the shares of a South Korean supplier that has become the world's biggest maker of electric vehicle batteries.

South Korea's LG Chem has surged more than 62 per cent this year to a valuation of around US$30 billion, becoming the sixth-largest stock on the benchmark Kospi index and leaving Hyundai Motor, the nation's largest automaker, in the dust.

While LG supplies many automakers, including Hyundai, it's been particularly fuelled by a deal to supply batteries to Tesla's China factory, which is pumping out Elon Musk's cars at a growing clip.

Expanding EV subsidies in Europe and Tesla's stupefying rally have buoyed related stocks worldwide despite global economic concerns. Fundamentals matter little, with Tesla just starting to show profit and EV truck maker Nikola yet to produce its first semi.

"We believe LG Chem is set to benefit the most in Europe with its high market share and positioning," said Jae Lee, chief executive officer at Timefolio Asset Management SG, a Singapore-based hedge fund that holds shares of the company.

LG Chem had 24 per cent of the global EV battery market as of end-May. China's Contemporary Amperex Technology has been hurt by the pandemic, the trade war and a scaling back of government subsidies in its home market, though it recently forged a supply contract of its own for Tesla's Shanghai facility.

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LG Chem had a US$124 billion battery order backlog of early 2020, and aims to expand capacity to 100 gigawatt hours (GWh) by end-2020 and 120 GWh in 2021.

"LG Chem has the largest capacity for EV batteries in the world now and it's even increasing it, while rivals are not doing so," said Wooho Rho, an analyst at Meritz Securities. Mr Rho and at least six other analysts raised their price targets for LG Chem this month, with Meritz expecting a consolidated operating profit of 532 billion won (S$613.6 million) for the quarter ended June, the most in about two years.

The company's shares fell as much as 1.9 per cent Monday in Seoul, extending its 2.5 per cent drop last week. Some investors are worried that rising competition among battery makers may put pressure on growth in margins, according to Hyunsoo Kim, an analyst at Hana Financial Investment.

Other market concerns include the possibility that Tesla could announce a new battery supplier at its "Battery Day" event on Sept 22, Mr Rho said, adding that such concerns are probably overblown given the high barriers for any potential new partner.

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