Global EV And Renewable Trends Will Expand Premium Battery Demand

Key Takeaways

• Rapid localization, production scale-up, and successful diversification position Samsung SDI for accelerated revenue growth, improved margins, and market share gains versus competitors.
  
• Innovation in battery chemistries and sector expansion, including ESS and premium device markets, supports premium pricing and resilience, bolstering long-term profitability.
  
• Weakened demand, regulatory shifts, supply chain risks, intense competition, and heavy capital spending create major profitability challenges and increase earnings volatility.

Catalysts

Manufactures and sells batteries in South Korea, Europe, China, North America, Southeast Asia, and internationally.

• Analyst consensus expects prismatic battery expansion to drive steady U.S. EV battery revenue, but the combination of rapid mass production ramp-up at StarPlus Energy and swift localization efforts positions Samsung SDI to capture a far greater share of the surging U.S. and EU volume/entry EV segments, accelerating top line growth and improving utilization rates ahead of peers.
  
• While mass production of 46-phi cylindrical batteries and new application wins are expected by analyst consensus to gradually enhance revenues, early and exclusive automotive design wins-plus expansion into diverse sectors such as robotics and UAM-could rapidly scale high-margin sales and deliver a substantial beat to net margin recovery expectations.
  
• Samsung SDI's focus on high-nickel chemistries, fast-charging LFP, and proprietary safety technologies is likely to command premium pricing and unlock significant cost advantages, supporting future margin expansion even as competition intensifies in the global battery market.
  
• As ESS demand surges from data center and renewable buildout worldwide, Samsung SDI's aggressive U.S. onshoring and successful bid wins for local utility/grid projects give it the potential to rapidly scale recurring ESS revenue, outpacing market growth rates and supporting robust long-term earnings.
  
• Accelerated penetration of the premium smartphone, wearables, and IT device battery markets-demonstrated by first-in supply for flagship launches and new EUV/semiconductor materials-creates sustained, untapped revenue and profit opportunities independent of EV cycles, providing resilience and upside to group-level earnings.

Samsung SDI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Samsung SDI compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Samsung SDI's revenue will grow by 25.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.3% today to 10.3% in 3 years time.
• The bullish analysts expect earnings to reach ₩2998.0 billion (and earnings per share of ₩36117.2) by about August 2028, up from ₩42.8 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 12.3x on those 2028 earnings, down from 401.1x today. This future PE is lower than the current PE for the KR Electronic industry at 15.1x.
• Analysts expect the number of shares outstanding to grow by 2.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.95%, as per the Simply Wall St company report.

Samsung SDI Future Earnings Per Share Growth

Risks

• Ongoing global trade tensions, specifically the imposition of US tariffs and the uncertainty around IRA policy revisions, are already materially impacting Samsung SDI's supply chain and cost structure, creating headwinds for operating margins and net income in the core ESS and battery businesses.
  
• Political and regulatory changes, such as reduced EV subsidies and relaxed emissions regulations in major markets like the US and EU, have contributed to sluggish EV battery demand, which has resulted in revenue declines, operating losses, and lower utilization of manufacturing assets.
  
• Samsung SDI's heavy reliance on a few major customers, especially in EV and ESS markets, increases its exposure to contract delays, lost orders or renegotiation risks, as evidenced by inventory adjustments and delayed compensation from key clients, translating into revenue volatility and unpredictable earnings.
  
• Intense competition in entry-level and volume EV battery segments-where Samsung SDI is a late entrant compared to established Chinese players-could lead to price-based competition and further margin compression, making it challenging to capture new sales and improve profitability.
  
• The persistent need for high capital expenditures to expand manufacturing capabilities, develop new chemistries like LFP, and facilitate localization for tariff avoidance continues to strain free cash flow and profitability, as shown by ongoing multi-billion capital investments despite negative operating income and net losses.

Valuation

• The assumed bullish price target for Samsung SDI is ₩340702.66, which represents two standard deviations above the consensus price target of ₩234595.13. This valuation is based on what can be assumed as the expectations of Samsung SDI'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 ₩440565.0, and the most bearish reporting a price target of just ₩135000.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₩29190.4 billion, earnings will come to ₩2998.0 billion, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of ₩218000.0, the bullish analyst price target of ₩340702.66 is 36.0% 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.