Tesla And GM Will Spark Global Demand For Battery Materials

Key Takeaways

• Accelerated restructuring and divestment from commoditized segments could rapidly expand margins and boost earnings as market conditions improve.
  
• Leadership in next-gen materials and battery technology positions LG Chem for strong growth, supported by sustainability trends and operational excellence.
  
• Prolonged industry oversupply, weak battery material demand, and rising financial and regulatory risks threaten revenue growth, margin stability, and long-term investment returns.

Catalysts

Engages in the petrochemicals, energy, advanced materials, and life science businesses in Korea, China, Asia/Oceania, the United States, Europe, and internationally.

• Analyst consensus expects cost efficiencies from LG Chem's restructuring, but this could be dramatically understated-management's accelerated exit from commoditized segments and aggressive divestment of non-core assets could yield a far faster expansion in net margins, especially if global supply rationalizes more quickly than expected in cyclically depressed markets.
  
• While the consensus sees incremental margin expansion from high value-added products, it underestimates LG Chem's first-mover advantage in next-gen materials and rapid commercialization in batteries, recycling, and advanced petrochemical applications, which could capture disproportionate share and drive outsized revenue and operating profit growth versus peers.
  
• The explosive global adoption of electric vehicles, especially as automakers like Tesla and GM roll out lower-priced models and new platforms, positions LG Chem's North American battery materials business to benefit from multi-year volume ramps and local content advantages, supporting a structural lift in group-wide sales and sustained, high-margin revenue streams.
  
• Rising demand for sustainable materials and specialty chemicals, bolstered by stricter global climate and circular economy regulations, creates a long runway for LG Chem's investments in chemical recycling, biodegradable plastics, and green aviation fuels to command premium pricing-unlocking significant upside to both top-line growth and operating margins as legacy competitors scramble to catch up.
  
• LG Chem's relentless focus on operational excellence-including enhanced customer targeting, optimized global manufacturing, disciplined capital allocation, and strategic JVs in emerging markets-sets the stage for a sharp rebound in cash generation and underlying earnings power as cyclical headwinds fade, with the potential to drive meaningful multiple re-rating for the stock.

LG Chem Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on LG Chem compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming LG Chem's revenue will grow by 15.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.5% today to 8.2% in 3 years time.
• The bullish analysts expect earnings to reach ₩6201.4 billion (and earnings per share of ₩79034.73) by about July 2028, up from ₩-1724.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.5x on those 2028 earnings, up from -13.2x today. This future PE is lower than the current PE for the KR Chemicals industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

LG Chem Future Earnings Per Share Growth

Risks

• Continued global oversupply in petrochemicals, exacerbated by capacity expansions in China and the Middle East and sluggish demand recovery, is likely to put sustained downward pressure on product prices and utilization, weighing negatively on both revenue and operating margins over the long term.
  
• Weakness in core growth drivers, especially battery materials, is highlighted by declining volumes, flat or falling average selling prices due to persistent softness in metal prices and EV demand uncertainties, which limits top-line growth and threatens future earnings stability.
  
• The company's own strategic commentary indicates the need for downward adjustment in battery material capacity plans and a more conservative investment approach, suggesting long-term demand projections are less robust, with financial risks around high capital intensity and the possibility of continued negative free cash flow.
  
• Rising interest expenses, significant impairment losses for battery separators and pharmaceutical assets, and ongoing exposure to foreign exchange volatility collectively point to balance sheet strain and persistent risk to net margins and overall bottom-line performance.
  
• Heightened regulatory and policy uncertainty, with examples such as potential tariff increases, rollbacks in environmental and EV incentives, and exclusion from government restructuring benefits for large conglomerates, could curtail global expansion opportunities, aggravate supply chain challenges, and adversely affect both revenue and margin outlooks.

Valuation

• The assumed bullish price target for LG Chem is ₩416447.18, which represents two standard deviations above the consensus price target of ₩326222.22. This valuation is based on what can be assumed as the expectations of LG Chem's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩500000.0, and the most bearish reporting a price target of just ₩275000.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₩75389.6 billion, earnings will come to ₩6201.4 billion, and it would be trading on a PE ratio of 8.5x, assuming you use a discount rate of 10.1%.
• Given the current share price of ₩291000.0, the bullish analyst price target of ₩416447.18 is 30.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.