As South Korea’s top three battery makers approach their second-quarter earnings season, market expectations and concerns are intersecting. LG Energy Solution (373220.KS) managed to return to profitability but delivered a report card that fell short of market consensus, revealing that the Energy Storage System (ESS) business—touted as a new growth driver—has instead become a short-term earnings stumbling block. Despite positive signals from a recovery in electric vehicle (EV) demand and a boom driven by artificial intelligence (AI) data centers, analysts suggest that one-off costs from production line conversions could trip up Samsung SDI (006400.KS) and SK On.
LG Energy Solution posted preliminary second-quarter revenue of 7.56 trillion won (approximately $5.0 billion) and an operating profit of 113.3 billion won (approximately $75.4 million). While this marked a turnaround from the previous quarter’s operating loss of 207.8 billion won, it significantly missed the market consensus of 203.4 billion won. Notably, excluding the impact of subsidies such as the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act (IRA), the company recorded an operating loss of 127.7 billion won, effectively missing its de facto profit target. This means the company failed to meet the goal set by CFO Lee Chang-sil during an April conference call to achieve a company-wide profit excluding IRA benefits.
Securities analysts and industry insiders point to ESS conversion costs as the primary reason for the earnings miss. To offset the sluggishness in its EV battery business, which is stuck in a chasm of temporary demand stagnation, LG Energy Solution is converting existing EV battery production lines to ESS lines, primarily targeting the North American market. During this process, bottlenecks in the ESS pack assembly process caused shipments to fall short of expectations, and the cost burden of ramping up utilization rates at new lines further squeezed profitability.
This increase in ESS conversion costs is expected to be a burdensome variable for Samsung SDI and SK On, which are about to announce their second-quarter results. For Samsung SDI, which has posted losses for six consecutive quarters since Q4 2024, the market expects its Q2 operating loss to narrow to the 60 billion won range (approximately $39.9 million). This continues a trend of rapidly shrinking losses, following deficits of 591.3 billion won in Q3 2025, 299.2 billion won in Q4, and 155.6 billion won in Q1 2026. While expanding ESS production is essential for Samsung SDI to achieve its goal of turning a profit in the second half of the year, unexpected conversion costs could prove to be a stumbling block, as seen in LG Energy Solution’s case.
SK On is also diversifying its business portfolio from an EV focus to include ESS and other areas to escape the chronic deficits it has faced since its establishment as a standalone corporation in 2021. If costs increase during the large-scale facility conversion process, its financial burden could worsen. “As the ESS market grows rapidly, companies are converting EV lines to ESS, but the conversion cost burden has become larger and the transition period longer than expected,” an industry official said. “ESS conversion costs will temporarily act as a variable for the earnings of South Korea’s battery industry.”
Despite these short-term burdens, the mid-to-long-term demand environment surrounding the battery industry is positive. In North America, a boom in AI data center construction is causing a surge in power demand, rapidly increasing the need for large-scale ESS batteries. Furthermore, with Samsung and SK announcing multi-trillion-won investments in massive semiconductor and AI infrastructure within South Korea, domestic demand for ESS construction to ensure a stable power supply is expected to skyrocket. The gradual recovery of EV demand, particularly in Europe, is another positive sign.
However, the shrinking presence in the EV battery market is a cause for concern. According to SNE Research, the combined global EV battery market share (excluding China) of South Korea’s three major battery makers was 28.4% from January to May 2026, a sharp drop of 8.7 percentage points year-over-year. LG Energy Solution’s share fell from 20.2% to 16.7%, SK On’s from 9.8% to 7.6%, and Samsung SDI’s from 7.2% to 4.1%. While the ESS market is growing rapidly, intensifying competition, especially in North America, suggests it may not be enough to fully offset the EV slump.
Ultimately, the second quarter is shaping up to be a potential turning point for South Korea’s battery industry. While a powerful momentum exists from the ESS boom driven by AI data centers and massive domestic investments, the temporary cost burden from production line conversions is emerging as the biggest variable for short-term earnings. Market attention is likely to focus on how effectively Samsung SDI and SK On have controlled these cost variables when they report their earnings later this month.