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The ‘Tesla effect’ boosts battery maker stocks

A remarkable rally in U.S. makes EV vision more of a possibility
Feb 06,2020
Tesla’s remarkable 36 percent rally over the past week is lifting the shares of local electric vehicle (EV) battery makers.

It’s being called the “Tesla effect.”

Investors are betting that the stock price rise of the world’s leading EV maker, which came after the company reported an earnings surprise, suggests that the age of the EV is coming, despite nagging doubts about the practicality of the vehicles and the true potential of the market.

Tesla shares, which trade on the Nasdaq, rose more than 36 percent from $650.57 last Thursday to $887.06 by Tuesday’s close. At one point, the company’s shares hit $961.

With demand strong for the Model 3 and Model S, Tesla’s revenue hit $7.38 billion in the fourth quarter, beating Bloomberg’s consensus forecast of $7.06 billion.

The knock-on effect was almost immediate, with Korean EV battery manufacturers doing especially well on the local stock market.

This week through Wednesday, LG Chem added 13.2 percent to reach 382,000 won ($323), while Samsung SDI rose 13.8 percent to 314,000 won. SK Innovation’s share price added 3.08 percent to 134,000 won during the same period.

The share prices of other companies related to EV battery manufacturing rose at least 3 percent this week through Wednesday’s close.

Over the same period, the benchmark Kospi rose 2.2 percent.

The sudden surge of the stock prices of EV battery manufacturers in Korea hints to a turn to positive for the global EV market, analysts say.

They say that if Telsa does well, it is almost certain that the battery makers will do well too.

The earnings report “signifies that the EV and battery industries resolved the problem of profitability,” said Moon Nam-joong, an analyst at Daishin Securities.

Analysts also say that the local EV battery manufacturers will experience additional growth throughout the year, as global EV sales will increase from tightening governmental regulations of fossil fuel vehicles.

As a result, they expect stock values of the Korean companies to continue rising in the long term, even though some of them could nevertheless report not-so-great earnings in the first quarter.

“Until now, the problem of profitability has always troubled the fortune of electric cars and electric car batteries due to the expensive price of batteries,” Moon said.

The analyst added that many worried that demand for the products would fall without government subsidies.

“But the battery price level has steadily fallen thanks to technology developments, and profit levels are improving for related businesses as the overall size of the market is growing.”

BY KO JUN-TAE [ko.juntae@joongang.co.kr]