LG Energy Solution briefly overtakes SK Square for No. 3 market cap spot as battery stocks surge

Shares of major battery makers are on the rise, with LG Energy Solution briefly climbing to third place by market capitalization on the Kospi. The rally is being driven by growing expectations that South Korean companies will win more energy storage system (ESS) orders in North America as Chinese battery makers lose ground in the US market.

According to Korea Exchange, LG Energy Solution surpassed SK Square during intraday trading Tuesday to claim the third-largest market cap on the Kospi. As of 9:30 a.m., LG Energy Solution's market capitalization stood at 99.1 trillion won ($74.4 billion), edging out SK Square's 98.94 trillion won. The move came after the company had already overtaken Samsung Electro-Mechanics for fourth place on Wednesday.

Reports that Chinese battery makers may be withdrawing from the US market fueled a broad rally in secondary battery stocks on Monday. "Industry sources were quoted as saying that major Chinese ESS companies have in effect exited the US market due to tightening US regulation, tariffs and equity review requirements," said Lee Jae-won, an analyst at Yuanta Securities Korea. "The prospect of Chinese players leaving the market has highlighted expectations for South Korean battery companies to expand their order books in North America."

While the Kospi has trended lower over the past month, secondary battery stocks have risen across the board. LG Energy Solution gained 18.68 percent from Sept. 18 to Monday, far outpacing the Kospi's minus 14.11 percent return over the same period. Samsung SDI rose 9.65 percent, SK Innovation 19.33 percent, Ecopro 9.84 percent and Ecopro BM 12.76 percent.

Battery-related ETFs also posted solid returns. According to Koscom ETF Check, the KODEX All-Solid-State Battery ESS TOP Plus ETF rose 17.58 percent over the past month. The RISE Secondary Battery TOP10 and TIGER Secondary Battery Theme ETFs gained 8.85 percent and 8.45 percent, respectively.

Improving earnings are adding further momentum to the rally. LG Energy Solution announced preliminary third-quarter results showing sales of 9.64 trillion won and operating profit of 756 billion won. The operating profit figure was more than double the market consensus of 326.4 billion won. Even excluding the 416.9 billion won US Advanced Manufacturing Production Credit, operating profit reached 339.1 billion won.

Samsung SDI is also expected to post a profit for a second consecutive quarter. The consensus operating profit estimate for the third quarter, compiled by Yonhap Infomax, stands at 237 billion won — a turnaround from an operating loss of 591.3 billion won in the same period last year.

Anticipation of policy shifts ahead of the US midterm elections in November is also lifting investor sentiment. The expectation is that if the Democratic Party wins majorities in both chambers of Congress, it will move to restore clean energy tax credits scaled back by the Donald Trump administration and push to expand ESS investment. Companies with US production bases, including LG Energy Solution and Samsung SDI, are seen as the primary beneficiaries.

The medium- to long-term growth outlook is also positive. On top of the US drive to secure a non-Chinese battery supply chain, surging power demand from AI data centers is expected to accelerate growth in the ESS market.

Daol Investment & Securities estimates that annual ESS installations in the United States will grow from 51 gigawatt-hours (GWh) in 2025 to more than 120 GWh by 2030 — more than doubling the market's size within five years.

Analysts expect share price performance among battery stocks to diverge based on each company's ESS competitiveness. "Given that the electric vehicle market remains sluggish and lithium prices are falling, we recommend a selective approach focused on large-cap names with clear ESS exposure and ESS component and equipment suppliers, rather than buying the sector as a basket," said Kim Hyun-su, an analyst at Hana Securities.