[Edaily Reporter Park Sun-Yeop ] Analysts have concluded that the three-year downturn in the secondary battery industry is nearing its end. The sector, which has been struggling due to slowing demand for electric vehicles, inventory adjustments, and falling lithium prices, is expected to show a gradual recovery starting in the second half of this year. However, the recovery is projected to spread first to battery cell manufacturers rather than materials suppliers.
Joo Min-woo, an analyst at NH INVESTMENT & SECURITIES, stated in a report on the 25th, “Earnings forecasts are being revised upward, particularly for major companies,” adding, “The three-year downturn appears to be coming to an end.” NH INVESTMENT & SECURITIES noted that rather than diversifying portfolios within the secondary battery sector, investors should concentrate on cell manufacturers, and identified LG Energy Solution(373220)and SAMSUNG SDI CO.,LTD.(006400)as top picks.

The lead analyst cited four reasons for the end of the downturn. First is the recovery in Tesla’s sales in Europe and Asia. With sales of the facelifted Model Y exceeding expectations, Tesla’s cumulative sales in May rose 45% year-over-year in Europe and 30% in Asia. Sales growth in Asia, excluding China, reached 112%. The analysis suggests that if the number of countries approving Full Self-Driving (FSD) in Europe increases in the second half of the year, Tesla’s sales will accelerate further, which could serve as a catalyst for improved earnings at LG Energy Solution.
Second is the potential for domestic battery manufacturers to regain market share in Europe. To comply with stricter carbon dioxide emission regulations set to take effect in 2027, automakers in Europe will inevitably continue their efforts to expand electric vehicle sales. Furthermore, once the Industrial Acceleration Act (IAA)—which requires the procurement of five key materials within the region—takes effect, the burden of adopting Chinese-made cells and materials will increase, creating an opportunity for domestic cell and material manufacturers to regain market share. Recent expectations of new orders from Volkswagen and BMW—following SAMSUNG SDI CO.,LTD.’s recent win of a contract to supply prismatic batteries to Mercedes-Benz—are also in line with this trend.
Third is the narrowing of the contraction in the U.S. electric vehicle market. While U.S. EV sales have been sluggish since the suspension of subsidies, the rate of decline has recently eased from the 30% range to the 20% range. Although this remains a drag on earnings, the company expects the market to resume contributing to earnings starting in 2027, once inventory adjustments are complete.
Fourth is the high growth of the U.S. energy storage system (ESS) market. As of April, cumulative ESS installation capacity in the U.S. increased by 71% year-over-year. This represents a steeper growth rate than last year. The eligible supply rate for the Investment Tax Credit (ITC) and the Advanced Manufacturing Production Credit (AMPC) is estimated to rise to 82% in 2026 and 90% in 2027, leading analysts to conclude that domestic cell manufacturers with local production capacity in the U.S. are likely to benefit the most.
NH INVESTMENT & SECURITIES also highlighted the expansion of ESS into artificial intelligence (AI) infrastructure. NVIDIA has announced that starting with AI factories equipped with the Rubin Ultra chip in 2027, an 800V DC power architecture will be fully implemented, and the use of ESS will be expanded to ensure grid stability. The battery energy storage system (BESS) capacity per AI data center is estimated to be 200–300 MWh. Based on projected sales of the Rubin Ultra package, NH INVESTMENT & SECURITIES forecast that demand for data center ESS will reach 1.9 GWh in 2027 and 34.9 GWh in 2028.
Research Analyst Ju commented, “Although the scale is still small compared to the overall ESS market, it is a significant market for domestic battery manufacturers.” This is because, with roughly half of global AI data centers expected to be built in the U.S., projects must meet eligible supply chain requirements to qualify for tax credits in the U.S. The report explains that if additional ESS orders linked to Big Tech companies are announced—such as LG Energy Solution’s recent two-year contract with DTE for a 6–7 GWh ESS to support Oracle’s data center power needs—it could further strengthen the stock’s momentum.
The expansion of the space industry was also cited as a new source of demand. Analysis suggests that space-grade batteries require high durability and reliability in extreme environments, and since weight directly translates to cost, ternary batteries with high energy density hold an advantage. NH INVESTMENT & SECURITIES estimated that, when considering both battery pack prices and launch costs, the cost of sending batteries into space is $540 per kWh for ternary batteries and $710 per kWh for LFP batteries, concluding that ternary batteries offer better economic viability.
SpaceX’s plans for space-based data centers were also cited as a source of potential demand. NH INVESTMENT & SECURITIES estimated that SpaceX will build space-based data centers with a capacity of 1 GW by 2027 and 10 GW by 2029, analyzing that this could generate approximately 10 GWh of battery demand over the next three years. The calculation suggests that if the scale ultimately expands to 100 GW, a total of 100 GWh of batteries will be required. It is highly likely that Chinese batteries will be excluded from this sector as well, so the benefits are expected to be concentrated on LG Energy Solution, SAMSUNG SDI CO.,LTD., and Panasonic.
However, the recovery of materials suppliers is expected to lag behind that of cell manufacturers. Lithium prices, which had been strong since the beginning of the year, have recently stalled, and the possibility of supply resuming in the second half of the year is acting as a drag. Researcher Ju projected that, given strong ESS demand, lithium prices would continue to fluctuate within a range centered around the $20 per kg level. Based on export volume data for cathode materials, it is judged that a full-scale recovery in demand has not yet spread across the materials sector as a whole.
A moderate recovery is expected for second-quarter earnings. SAMSUNG SDI CO.,LTD. and POSCO FUTURE M(003670)are projected to exceed consensus estimates thanks to one-time factors, while the remaining companies are generally expected to meet market expectations. The report explains that tariff refunds for U.S. exports by domestic battery manufacturers and compensation payments from North American automakers could have a positive impact on earnings.
Research Analyst Ju stated, “The first signs of a market recovery will be felt in the battery sector rather than in materials,” adding, “Since eligibility for policy benefits such as AMPC, ITC, and IAA requires a gradual shift away from China, a strategy of selective focus on cell manufacturers is necessary.”