Shares of Samsung SDI and LG Chem continued to struggle Monday for almost a month, with concerns growing over China’s subsidy suspension for electric buses powered by their batteries.

LG Chem shares closed at 289,000 won ($240), down 2.20 percent from Friday, while Samsung SDI shares closed nearly flat at 93,500 won after fluctuations.

In its latest move to gradually scale back subsidies for EVs, the Chinese government recently decided not to give subsidies for NCM or nickel-manganese-cobalt chemistry batteries that are produced by leading battery-makers like Samsung, LG and Panasonic, while offering benefits only to its alternative LFP or lithium-ion-phosphate chemistry batteries that are adopted by Chinese companies such as BYD. 

Compared to LFP, the NCM manufacturing is considered more potent as it improves battery life and performance but lowers longer-term costs. Because NCM requires more advanced packaging, battery management and thermal management systems, China’s less-experienced battery-makers have focused on LFP for safety reasons.

“Although the Chinese government has pinpointed safety issues, the ban is clearly politically motivated,” a company official said on condition of anonymity.

Another source, who also wished to be unnamed, said, “The ban may only be temporary. But it seems unavoidable for the battery units of Samsung and LG to struggle in the Chinese market for some time.”

China is the world’s largest car market whose EV sales are expected to soar due to the government’s generous benefits. The country aims to lift EV sales to 1.5 million vehicles, or 5 percent market share, by 2020 from 7,500 units in 2014.

However, the government announced its decision last year to roll back subsidies by 20 percent in 2017-2018 and by 40 percent in 2019-2020 in a move to pressure carmakers to reduce the car prices rather than relying on subsidies for profit.

And the latest subsidy cut for EV buses is expected to hit hard Samsung and LG that are betting big on the all-important market. The two companies also opened separate large-scale battery plants in China last year.

According to estimates by Nomura Securities, LG’s EV battery revenue could fall by 19 percent this year following the Chinese ban, while Samsung would see a 30 percent drop in sales when all EV bus supply is suspended in the market.

Amid speculations that Chinese battery-makers are challenging their Korean rivals on their home turf, the two companies denied any long-term impact.

“Even China’s major EV makers still prefer NCM batteries,” said LG Chem senior vice president Kim Jong-hyun on a conference call last week. “We think the Chinese government will expand EV subsidies in the longer term.”

Samsung SDI president Cho Nam-seong also told shareholders recently: “We are confident the EV market will continue its steep growth.” The company last year announced a 3 trillion won investment plan for its EV battery business. 

By Lee Ji-yoon (jylee@heraldcorp.com)