Taylor Swift and the Impact of Her Political Support on the Asian Battery Market

The prominent support of Taylor Swift for Kamala Harris as US President in an Instagram post, signed with "Childless Cat Lady," has far-reaching effects that extend well beyond American borders. Investors in Asia, particularly in the battery industry, are analyzing public reactions to the debate between Harris and Donald Trump to gather indications for the outcome of the US elections. Special attention is being paid to electric mobility. Trump has announced that if re-elected, he will immediately end what he calls the "mandate to sell electric vehicles" to save the US auto industry from "total destruction." Under the current Biden administration, battery manufacturers benefit enormously from the aggressive promotion of electric mobility. US targets require producers to ensure that about two-thirds of all new cars are electric by 2032. According to the think tank RMI, the demand for new batteries in the US alone will rise to 44 million by 2030 to achieve net zero emissions. Elon Musk's support for Trump has sparked speculation that the former president might soften his stance on electric vehicles. However, the fact that Trump remains a critical opponent worries equity investors in the EV sector. A Trump victory is seen as increasing the likelihood of cuts in subsidies for battery makers and fewer federal tax incentives for EV buyers. JD Vance, Trump's vice-presidential candidate, supports reallocating these credits in favor of gasoline vehicles. Biden's EV initiative is supported by billions of investments through the Inflation Reduction Act 2022, with the estimated energy subsidies over the next ten years potentially costing more than one trillion US dollars. South Korean and Japanese battery makers are among the main beneficiaries of these investments. Meanwhile, Chinese manufacturers increasingly dominate the EV battery supply chain, with an estimated 80 percent of lithium-ion battery cells produced in China. This development has pushed South Korean and Japanese competitors into intensive price competition, while US tax credits have provided them with significant competitive advantages. For instance, these tax benefits contributed an estimated 785 million dollars to Japan's Panasonic, about a quarter of the total net profit for the fiscal year until March. The shares of LG Energy Solution, South Korea's largest EV battery manufacturer, have risen by a quarter since their low in August. Panasonic and Samsung SDI also recorded a one-fifth increase. Both foreign and local investors have eagerly bought these stocks, with battery stocks making up five of the ten most traded shares by foreign investors in South Korea last week. Nevertheless, investors should exercise caution. The stock prices are historically expensive, with a multiple of over 100 of expected earnings for LG Energy Solution, twice as high as at the end of last year and with a significant premium over global competitors. Despite the favorable political conditions, sales of EV batteries are disappointing. LG Energy Solution's operating profit fell by 58 percent, while revenue dropped by 30 percent in the last quarter. Samsung SDI saw a 24 percent decrease in EV battery business sales. Panasonic also missed its operating profit forecast for the fiscal year until March. Without US subsidies, the results would be significantly weaker, pushing some manufacturers into the loss zone. The outlook remains worrying. Although global EV sales are still growing, the growth rate is slowing down. Overcapacity presents a risk, as China used less than 40 percent of its maximum cell capacity last year, despite more than half of the global EV battery demand. Battery manufacturers have halted the construction of new plants and delayed expansion plans, highlighting increasing concerns that demand is not sufficient to support current prices and production. All of this leads to the realization that investments in EV battery manufacturers are no longer the sure bet they once were. The risks from political changes and overcapacity should prompt investors to exercise caution.