Samsung SDI is restructuring its business from a focus on electric vehicle (EV) batteries to energy storage systems (ESS). It judges that a recovery in EV demand will be difficult in the short term. It aims to raise ESS revenue by nearly 50 percent from a year earlier and make it a pillar of growth and profitability, targeting a return to quarterly profit in the second half of the year.

Samsung SDI has begun a full-scale shift in its portfolio. The company disclosed on Feb. 19 that it would pursue the sale of holdings including its stake in Samsung Display (SDC) to secure investment funds and improve its financial structure. It was an already signalled step, and Samsung SDI said in its fourth-quarter earnings conference call that it would put ESS at the forefront as a pillar of growth and profitability.

Samsung SDI posted fourth-quarter revenue of 3.86 trillion won and an operating loss of 299.2 billion won. Revenue rose 26.4 percent from the previous quarter, but the operating loss continued. For the year, it posted revenue of 13.27 trillion won and an operating loss of 1.72 trillion won. Changes in eco-friendly policies, a decline in EV sales by a strategic U.S. customer and a delayed recovery in demand for small batteries weighed on results.

Still, it posted record quarterly revenue from batteries for ESS in the fourth quarter, halving the loss from the previous quarter. Benefits from the U.S. Advanced Manufacturing Production Credit (AMPC) increased, and compensation tied to a drop in EV battery volumes was also reflected. The company, the only non-Chinese maker of prismatic batteries, diversified its portfolio with NCA-based SBB 1.7 and LFP-based SBB 2.0.

Based on that performance, Samsung SDI is focusing on expanding its ESS business. In its fourth-quarter earnings conference call, it said automakers (OEMs) were adjusting electrification strategies due to policy impacts such as relaxed fuel economy regulations and the abolition of subsidies, making a near-term recovery in EV battery demand unlikely. It cited that as the reason for shifting to ESS.

It said the move was not a defensive choice prompted by a worsening EV market, but a strategic decision to seize a growth opportunity. Samsung SDI said it is the only non-Chinese prismatic battery maker with both ternary and LFP portfolios and has secured U.S. local production capacity. It also cited a structural opportunity from a surge in power demand at AI data centres.

Samsung SDI sees the global EV battery market growing about 16 percent from a year earlier this year, but demand excluding China rising only about 6 percent. It will redefine small batteries and electronic materials as a defensive buffer for performance and shift to a structure that secures growth and profit in ESS.

The spread of artificial intelligence (AI) data centres is lifting demand for the ESS business. The company said demand for uninterruptible power supplies (UPS) and battery backup units (BBU) is expected to be higher in the mid to long term than forecast in the previous quarter, as investment in AI data centres expands. Opportunities for non-Chinese companies to produce locally in the United States are also expanding due to changes in the U.S. Inflation Reduction Act (IRA) and tariff policies.

The company is converting U.S. capacity from existing EV lines to ESS. Yong-hwi Jo (조용휘), an ESS battery team leader, said it has been carrying out the U.S. capacity conversion since the fourth quarter and that ESS sales this year are expected to rise by nearly 50 percent from a year earlier. The company said exports from South Korea carry a high share of U.S. shipments, lowering margins due to tariff costs, but U.S. local production is expected to significantly improve overall ESS profitability through the AMPC effect and tariff reductions.

The company said that once a new U.S. LFP line begins operating from the fourth quarter this year, export volumes from South Korea that bear tariff burdens will gradually decline and the initial fixed-cost burden of the new line will ease, making profitability improvements more pronounced. Jo said even if local companies expand ESS capacity using EV lines, it takes time for product verification and supply chain building. He added that the speed of expansion is limited because LFP cathode materials and the prismatic form factor require technical capabilities, and that a short-term supply glut is unlikely.

In particular, electronic materials are expected to maintain solid growth amid strong semiconductor demand. Jong-sun Park (박종선), a vice president for strategic marketing, said sales of professional power tools are rising as AI infrastructure and data centre construction increases. He added that demand for tabless products is expanding to BBUs and hybrid EVs, and the share of tabless sales in cylindrical batteries will rise by more than 10 percent this year.

Performance improvement is expected to become visible from the second half of the year. Je-gyun Oh (오제균), a vice president in charge of management support, said that excluding the seasonal off-season in the first quarter, the company expects a quarter-by-quarter improvement with a weaker first half and stronger second half. He said a return to quarterly profit is possible in the second half.

Samsung Display stake sale could bring in 11 trillion won, improving current ratio from 0.89 to 2.0

For Samsung SDI, this year is important. Chief executive Ju-sun Choi (최주선) told employees in his New Year address that this year must be the first year of a renewed leap and that there is no room to retreat. The company is also pushing ahead with the sale of its Samsung Display stake as it moves to shift its portfolio. On the 19th, it disclosed that it would pursue the sale of holdings including its Samsung Display stake to secure investment funds and improve its financial structure.

According to Hana Securities, the book value of Samsung SDI's 15.2 percent stake in Samsung Display is about 10.1 trillion won. Based on Samsung Display's forecast average annual operating profit over the next 2 years and applying the price-to-earnings ratio (PER) of Chinese panel maker BOE, Samsung Display's fair value is estimated at about 65 to 70 trillion won. It analysed that cash inflows of up to about 11 trillion won would be possible if the stake is monetised at around 1.1 times book value.

Its financial structure is also expected to improve significantly. As of the end of the fourth quarter, Samsung SDI's debt ratio was 79.3 percent, but with about 11 trillion won in cash inflows it would fall to the mid-50 percent range. The current ratio could also improve to about 2.0 from 0.89. Free cash flow could improve from about minus 500.0 billion won to about plus 10 trillion won.

IBK Investment & Securities analysed that at least 440.0 billion won of stake sales would be carried out, given Samsung SDI's annual capital expenditure is about 3 trillion won and the amount scheduled for this year and next totals 5.9 trillion won.

Mirae Asset Securities also raised its target price for Samsung SDI to 600,000 won from 500,000 won. The brokerage said there was no longer a reason for it to be undervalued compared with top global rivals, considering the start of its business supplying Tesla, the No. 1 player across all downstream product groups, and the improvement in financial structure from the sale of its SDC stake. An industry official said pursuing cash 확보 and business restructuring in parallel is positive in terms of securing mid- to long-term competitiveness, and that improving ESS profitability is key.