L&F wows investors with $2.9b Tesla deal

South Korean battery materials maker L&F is expected to continue growing after it recently wowed investors around the world by signing a $2.9 billion supply deal with US electric vehicle giant Tesla, according to analysts Thursday.

L&F on Tuesday posted in a regulatory filing that it will provide high-nickel cathode materials to Tesla for two years from Jan. 1, 2024, to Dec. 31, 2025. The two-year contract is almost four times bigger than L&F’s total sales of 971 billion won ($739 million) in 2022.

Jeon Chang-hyun, an analyst at Daishin Securities, estimated that the shipment will be about 70,000 tons of cathode materials, which would be enough to produce 44 to 47 gigawatt-hours of EV battery that can power up to 550,000 units of the Tesla Model Y.

“The three biggest implications of this deal are becoming a main cathode material vendor and an essential partner of Tesla’s plan to internalize the battery supply chain, raising anticipation of securing follow-up contracts and diversifying the customer base,” he said.

Jeon explained that L&F’s Tesla deal was made possible due to the company’s stable supply of battery materials to LG Energy Solution and the competitiveness of its high-nickel cathode material products that contain over 90 percent nickel.

The analyst pointed out that Tesla is projected to manufacture 600,000 EVs in 2024 and 1 million EVs in 2025 at its Gigafactory in Texas, adding that about 30 percent of those vehicles are expected to be equipped with Tesla’s own battery.

“Pushing to increase its production capacity to cope with the US (Inflation Reduction Act), Tesla’s Texas factory is expected to continue to grow. The battery production capacity (at the Texas factory) could increase to 100 GWh. Accordingly, a follow-up contract for future production is possible for L&F,” said Jeon.

The analyst noted that the concerns over L&F’s high dependence on LG Energy Solution for sales have eased with the Tesla deal. LG Energy Solution accounted for about 70 percent of L&F’s annual sales in 2022.

Gu Sung-joong, an analyst at DS Investment and Securities, said the Tesla contract removed the factors that undervalued L&F.

“(L&F’s) ability to secure additional customers is positively assessed due to the chances of some automakers looking to internalize EV battery production,” he said.

According to Gu, L&F aims to see 50 percent of its sales from LG Energy Solution, 30 percent of its sales from original equipment manufacturers and 20 percent of its sales from SK On in the future.

The shares of L&F jumped by 8.94 percent to 262,000 won at Tuesday’s closing on reports of the Tesla deal. For the first time, L&F took the second spot on the country’s secondary bourse Kosdaq in terms of market capitalization.

L&F was established in July 2000. Based in Daegu, the secondary battery materials maker went public in Jan. 2003. It has become one of the biggest companies in Daegu.