Andrew on Tech: Rechargeable Battery - The Next US$100bn Industry /Part 1

Asia, Sustinvest

Jonghan Park

Asia

Responsible investment, Proxy advisory

Sustinvest

Sustinvest is a specialized ESG research firm that provides comprehensive analysis on company-level ESG performance, industry-level ESG issues, and ESG-related regulations. In particular, we attempt to identify investment risks and opportunities associated with events such as corporate governance changes and M&A. We also conduct company visits and fundamental analysis to discover smaller companies with sustainable business model which are usually overlooked by institutional investors. Our focus is on Korean listed companies and not limited to specific sectors.  

Thematic (Sector/Industry)

South korea Transportation / Thematic (Sector/Industry)

There is a concern about whether the rapid emergence and evolution of HEVs and EVs represent a threat to the survival of the 12V lead-based battery. However, I find that the 12V lead-based battery' compatibility with the globally standardized electrical system, cold-cracking ability, and cost-efficiency make it remain the dominant technology in the electric era. <ul><li>The vehicle’s electrical system is globally standardized for all types of vehicles to be compatible with the 12V lead-based battery. If the 12V battery system is replaced with another high voltage system, it would undoubtedly involve tremendous costs along the value chain to entirely redesign the architecture, rebuild the production system, and retrain the employees. Thus, it is highly likely that a vehicle’s onboard electronics continue to operate at 12V. </li><li>Any vehicles that have an internal combustion engine (thus, including plug-in hybrid and full hybrid vehicles as well as micro hybrid and ICE vehicles) require a battery to be used for starting the engine, lighting, and ignition (SLI functions). The problem is that the lower the temperature, the weaker the battery’s ability to provide high currents to start the engine with stable voltage. It is only the 12V lead-based battery that can effectively start an engine at low temperatures below -30°C.</li><li>The lithium-ion battery, unlike the lead-based battery, needs a separate cooling system and control electronics to prevent overheating in order to serve the SLI function. In addition, lead is, without doubt, the most recycled metal of all those commonly used, whose production costs are far less compared to other advanced types of batteries. Thus, it is unquestionably cost-efficient. </li><li>Within the past 50 years, the lead-based battery has undergone an evolution of its own, and the absorbent glass mat (AGM) battery has recently been introduced. With higher deep-cycle resistance and longer-term energy storage systems, the AGM battery is suitable particularly for running the ISG system. With the global emission regulations being tightened, the ISG system's adoption rate is expected to grow rapidly, which will drive the corresponding growth of the AGM battery.</li></ul>There exists an investment opportunity in Korea. Sebang Global Battery (004490.KS), Korea's largest automotive &amp; industrial battery maker, deserves closer attention considering its high market share and bargaining power, growing production of AGM batteries, and low valuation.  In Part 2, I will conduct a deep dive into the company's fundamentals and present the investment thesis with my views on the current valuation and the rerating catalyst.

There is a concern about whether the rapid emergence and evolution of HEVs and EVs represent a threat to the survival of the 12V lead-based battery. However, I find that the 12V lead-based battery' compatibility with the globally standardized electrical system, cold-cracking ability, and cost-efficiency make it remain the dominant technology in the electric era. The vehicle’s electrical system is globally standardized for all types of vehicles to be compatible with the 12V lead-based battery. If the 12V battery system is replaced with another high voltage system, it would undoubtedly involve tremendous costs along the value chain to entirely redesign the architecture, rebuild the production system, and retrain the employees. Thus, it is highly likely that a vehicle’s onboard electronics continue to operate at 12V. Any vehicles that have an internal combustion engine (thus, including plug-in hybrid and full hybrid vehicles as well as micro hybrid and ICE vehicles) require a battery to be used for starting the engine, lighting, and ignition (SLI functions). The problem is that the lower the temperature, the weaker the battery’s ability to provide high currents to start the engine with stable voltage. It is only the 12V lead-based battery that can effectively start an engine at low temperatures below -30°C.The lithium-ion battery, unlike the lead-based battery, needs a separate cooling system and control electronics to prevent overheating in order to serve the SLI function. In addition, lead is, without doubt, the most recycled metal of all those commonly used, whose production costs are far less compared to other advanced types of batteries. Thus, it is unquestionably cost-efficient. Within the past 50 years, the lead-based battery has undergone an evolution of its own, and the absorbent glass mat (AGM) battery has recently been introduced. With higher deep-cycle resistance and longer-term energy storage systems, the AGM battery is suitable particularly for running the ISG system. With the global emission regulations being tightened, the ISG system's adoption rate is expected to grow rapidly, which will drive the corresponding growth of the AGM battery.There exists an investment opportunity in Korea. Sebang Global Battery (004490.KS), Korea's largest automotive &amp; industrial battery maker, deserves closer attention considering its high market share and bargaining power, growing production of AGM batteries, and low valuation.  In Part 2, I will conduct a deep dive into the company's fundamentals and present the investment thesis with my views on the current valuation and the rerating catalyst. 

Will the 12V Lead-Based Battery Survive the Coming Electric Era? (Part 1)