**[Korean Economic Daily ESG] ESG Hot Topic – Samsung SDI**
The surge of artificial intelligence (AI) is reshaping the battery market. As data centers powering colossal AI models like ChatGPT are being constructed globally, power consumption is soaring. The catch is that you can’t just build power stations overnight to use more electricity. This is where energy storage systems (ESS) for the power grid come into play. Simply put, they act as “massive backup batteries” that store and release electricity generated from solar and wind energy when needed.
Samsung SDI, a strong player in secondary batteries, is noted as a significant company in the ESS market, beyond just electric vehicle batteries. It’s being identified as a direct beneficiary of the ‘ESS investment boom’ triggered by the AI era. Recent reports from brokerage firms agree that the spread of AI and renewable energy is causing power grid instability and spurring ESS demand. Samsung SDI stands out as a major beneficiary.
**ESS: A Necessity, Not an Option**
AI servers consume enormous amounts of electricity. In regions with concentrated data centers, from the US to Europe and Korea, there’s talk of not granting permits for new data centers due to electricity shortages. Concurrently, governments and companies worldwide are pledging RE100 (procuring 100% of their electricity from renewable sources) and significantly increasing solar and wind power generation.
The problem, however, is the ‘variability’ of renewable energy. When the sun sets, solar power drops to zero, and wind power halts when the wind weakens. Conversely, power is excessive at midday. The structure requires ditching excess energy and hastily ramping up thermal power stations when short. ESS fills this gap.
In California, for instance, excess solar energy generated during the day is stored in ESS and used during evening peak air conditioning times. The same applies to data centers, where unexpected server shutdowns during peak power times can cause significant losses. Hence, volatile renewable energy cannot directly support servers without ESS acting as a ‘buffer.’
The rapid increase in ESS investments in the AI era is inevitable because installing ESS is faster and cheaper than building new power plants.
Samsung SDI’s business segments include small batteries (IT, power tools), medium-large batteries (EVs, ESS), and electronic materials. Among these, medium-large batteries, particularly those for ESS, are directly linked to the AI era.
Samsung SDI, which has established a strong position in EV batteries based on cylindrical and prismatic battery technology, has clients like BMW, Volkswagen, and Stellantis. They’re also building a new growth axis centered on ESS projects in the US and Europe, according to analysts.
Samsung SDI’s medium-large battery segment is expanding in two directions: ‘EV + ESS.’ While EVs previously held a larger share, inquiries for ESS orders are rapidly increasing with the expansion of AI data centers and renewable energy. Samsung SDI’s strength lies in utilizing their existing EV battery production lines and technology to penetrate the ESS market. They can leverage their manufacturing facilities, material supply chains, and safety design know-how, which results in relatively higher profitability compared to new investments.
**Strengthening LFP Batteries**
ESS batteries are divided mainly into lithium iron phosphate (LFP) and nickel-cobalt-manganese (NCM) categories. LFP is affordable with a long lifespan but has low energy density, while NCM boasts high energy density and performance but is more expensive and poses some environmental and human rights issues with certain raw materials.
While Samsung SDI has been known for its strength in NCM, it is also enhancing its LFP lineup for ESS, given that LFP’s strengths are more prominent for long-term cycling in ESS. They are adopting a ‘two-track strategy’ to differentiate between high-performance NCM for EVs and long-life, high-stability LFP for ESS.
From an ESG perspective, this strategy can be seen as a balanced portfolio. The high-energy density NCM products contribute to improving EV mileage and reducing carbon emissions, while LFP products aim to reduce dependency on minerals like cobalt and build a safer ESS infrastructure.
Their lineup for next-generation ESS battery products reflects this direction. Samsung SDI is developing new products like the SBB 1.7 (NCA, 6.14MWh) and SBB 2.0 (LFP, 4.47MWh), focusing on LFP prismatic batteries, large cell configurations, and 4-hour discharge capabilities, aligning with ESS battery trends.
**Stock Outlook**
Samsung SDI’s stock has been adjusted due to concerns of slowing EV demand and intensified competition with Chinese battery manufacturers. While expectations for EVs have waned, the rising prominence of ESS is changing the evaluation landscape, indicating a reassessment of corporate value.
However, the short-term performance outlook for Samsung SDI is not bright. They recorded an operating loss of 591.3 billion won in the third quarter this year, reporting a deficit due to over 600 billion won in battery segment losses. This marked the fourth consecutive quarter of deficit, with accumulated operating losses reaching 1.4232 trillion won this year.
The securities industry anticipates substantial performance improvement starting from the second half of next year. The continued ESS orders are expected to reflect in profits, with an increase in orders potentially boosting profit margins. The stock trajectory aligns closely with the performance trend, as continued orders suggest growing mid-to-long-term performance expectations coupled with actual performance improvements, boosting stock prices.
The dramatic rise in target stock price reflects these ESS expectations. The average target stock price has surged from 238,000 won three months ago to 369,000 won. Kwon Joon-soo, a researcher at Kiwoon Securities, states, “The electric vehicle segment, a major business unit, is expected to recover sales significantly around the second half of 2027 to 2028. However, the ESS segment is likely to generate local revenue from 2026 through the conversion of lines in the US.” He explains that the ability to collect a relatively higher portion of sales compared to EV production could greatly contribute to the company’s profitability improvement. Samsung SDI, equipped with prismatic technology, holds a competitive advantage in the prismatic LFP-dominated ESS market.
Ko Yoon-sang, Reporter at the Korean Economic Daily