🚨 Samsung SDI Stock Plunges After Announcing Large-Scale Rights Offering
Today Korean Economic News | 2025.03.22
📌 Samsung SDI Stock Plunges After Announcing Large-Scale Rights Offering
💬 After Samsung SDI announced a rights offering of approximately 2 trillion won, its stock fell by more than 6%, reaching a new 52-week low. This rights offering aims to raise funds for future growth, including investment in a joint venture with U.S.-based GM, expansion of the Hungary plant, and research and development of all-solid-state batteries. However, concerns have been raised about the dilution of existing shareholders' stakes due to the increase in the number of shares and the possibility of a stock price decline due to the discount on the issue price.
1️⃣ Easy to Understand
Samsung SDI's stock price has plunged significantly after announcing a rights offering of approximately 2 trillion won. I'll explain what a rights offering is, why this announcement led to a stock price decline, and why the company made this decision from a business perspective.
A rights offering is a method where a company raises funds by issuing new shares. Simply put, it's raising money by selling new shares to the market. This is one of the common methods companies use when they need funds for large-scale investments or business expansion.
Samsung SDI's announced 2 trillion won rights offering aims to secure funds for future growth, including investment in a joint venture with U.S.-based GM, expansion of the Hungary battery plant, and research and development of all-solid-state batteries. This can be seen as a preemptive investment to respond to the explosive growth in battery demand as the electric vehicle market rapidly expands.
But why did this announcement of fundraising for growth lead to a stock price decline? There are two main reasons.
First, there's the 'share dilution' effect. When a company issues new shares, the total number of shares increases, which relatively reduces the ownership ratio of existing shareholders. For example, if a shareholder previously held 1 share out of 100 (1% stake), after the company issues an additional 100 shares, that shareholder now holds 1 share out of 200 (0.5% stake). This reduction in ownership ratio is called 'dilution'.
Second, new shares in a rights offering are generally issued at a discounted price compared to the market price. This is to incentivize investor participation, but when a large volume is issued at a discounted price, it can create downward pressure on the stock price. Especially with a large-scale offering of 2 trillion won, it can have a significant impact on the stock price.
However, companies often make these decisions despite short-term stock price declines for the sake of long-term growth. The battery industry in particular is experiencing intense global competition, making preemptive investment essential for market preoccupation and technological advantage. Investment in the joint venture with GM can be seen as a strategy to strengthen entry into the U.S. market, expansion of the Hungary plant as a response to the European market, and research and development of all-solid-state batteries as a strategy to secure future technological competitiveness.
Therefore, while Samsung SDI's rights offering announcement and the resulting stock price decline may appear negative in the short term, they can be interpreted as strategic decisions to strengthen the company's growth potential and competitiveness within the industry from a long-term perspective. Investors need to consider these short and long-term impacts comprehensively when making investment decisions.
2️⃣ Economic Terms
📕 Rights Offering
A rights offering is a method where a company raises funds by issuing new shares, which has the effect of diluting existing shareholders' stakes.
- It can be conducted in various ways such as shareholder allocation, third-party allocation, and public offering.
- It is used to secure funds for a company's large-scale investments, financial structure improvement, and business expansion.
📕 Share Dilution
Share dilution is the phenomenon where the ownership ratio of existing shareholders decreases as the number of shares increases through a rights offering.
- Earnings per share (EPS) and voting rights ratio decrease, generally acting as a factor for short-term stock price decline.
- It is an investment consideration factor that should be evaluated along with the possibility of long-term corporate value increase.
📕 All-Solid-State Batteries
All-solid-state batteries are next-generation battery technology that increases safety and energy density by using solid electrolytes instead of liquid electrolytes.
- They have advantages such as lower risk of ignition, higher energy density, and faster charging speed.
- Currently in the early stages of commercialization, global battery companies are actively investing in technology development.
📕 Joint Venture (JV)
A joint venture (JV) is a company jointly established by two companies to spread risk and investment burden while creating mutual synergy.
- It is established for various purposes such as global market entry, technological cooperation, and achieving economies of scale.
- The joint venture between Samsung SDI and GM is a strategic partnership targeting the U.S. electric vehicle battery market.
3️⃣ Principles and Economic Outlook
💡 Global Competition in the Battery Industry and the Need for Large-Scale Investment
The battery industry is experiencing intense global competition along with the rapid growth of the electric vehicle market, which is increasing the need for large-scale investments.
First, explosive growth in the electric vehicle market is driving battery demand. The global electric vehicle market has been rapidly expanding, recording an average annual growth rate of over 30% for the past five years. This growth trend is expected to accelerate further due to major countries' carbon neutrality policies and plans to ban the sale of internal combustion engine vehicles, expansion of charging infrastructure, and diversification of electric vehicle models. According to market research firms, the global electric vehicle battery market size is predicted to expand from about $150 billion in 2025 to over $400 billion by 2030. This rapid market expansion is requiring battery manufacturers to preemptively expand their production capacity.
Second, the global competitive landscape in the battery industry is intensifying. Traditionally, Korean (Samsung SDI, LG Energy Solution, SK On), Chinese (CATL, BYD), and Japanese (Panasonic) companies have led the market, but recently, new entrants from Europe and the United States are also actively entering the market. In particular, European startup Northvolt and American Quantumscape are growing rapidly by raising large-scale funding. Additionally, global automotive manufacturers are also entering direct production, recognizing the strategic importance of battery technology. For example, Volkswagen, Tesla, and GM are investing in securing their own battery production capabilities. This intensified competition is requiring existing battery companies to make aggressive investments to defend their market positions.
Third, regional supply chain reorganization and demands for local production are expanding. Recent policies such as the U.S. Inflation Reduction Act (IRA) are encouraging local production of batteries and providing incentives for products produced in certain countries. In particular, the United States and Europe are actively supporting the establishment of domestic battery production bases to reduce supply chain dependence on China. These environmental changes are increasing the necessity for global battery companies to build local production facilities for major markets, which requires large-scale capital investment. Samsung SDI's investment in a joint venture with U.S.-based GM and expansion of the Hungary plant can be seen as strategies responding to this regional supply chain reorganization.
Fourth, R&D investment for technological innovation is becoming increasingly important. The battery industry has strong technology-driven characteristics and requires continuous innovation in various aspects such as energy density, charging speed, safety, lifespan, and cost. In particular, competition in research and development for next-generation technologies such as all-solid-state batteries and sodium-ion batteries is intensifying. This technological innovation requires massive R&D investment, and securing technological leadership through preemptive investment is becoming an important competitive factor. Samsung SDI's investment in all-solid-state battery research and development can be seen as a core strategy for securing future competitiveness.
In this industry environment, battery companies find it essential to make large-scale investments for expanding production capacity, building regional supply chains, and developing next-generation technologies. Samsung SDI's 2 trillion won rights offering can be interpreted as a strategic decision to respond to these industry trends, and despite its short-term stock price impact, it may be an essential choice for strengthening long-term competitiveness.
💡 Stock Price Impact of Rights Offerings and Analysis from an Investor Perspective
The impact of a rights offering on stock prices is complex, and it's necessary to analyze short-term and long-term effects separately.
First, in the short term, rights offerings generally have a negative impact on stock prices. As seen in Samsung SDI's case, the stock price fell by more than 6% immediately after the rights offering announcement, reaching a new 52-week low. This short-term stock price decline stems primarily from three factors. First, earnings per share (EPS) is expected to decrease due to the share dilution effect. The issuance of new shares worth 2 trillion won represents a significant increase in the existing number of shares, leading to dilution of earnings per share. Second, new shares in a rights offering are generally issued at a discounted price compared to the market price, and this discounted price acts as downward pressure on the market price. Finally, a large-scale rights offering means additional supply will be released to the market, which can also have a negative impact on the short term from a supply and demand perspective.
Second, from a long-term perspective, the purpose of fund use and investment performance have a more important impact on stock prices. If the funds raised through the rights offering are used for productive investments that increase corporate value, they can have a positive impact on stock prices in the long term. In Samsung SDI's case, the raised funds are planned to be used for strategic investments for future growth, including ① investment in a joint venture with GM, ② expansion of the Hungary plant, and ③ research and development of all-solid-state batteries. If these investments are successfully made, they could lead to increased market share, sales and profit growth, and strengthened technological competitiveness, which could positively impact stock prices in the long term. Considering the rapid growth prospects of the electric vehicle battery market, these preemptive investments can be seen as essential strategies to capture future growth opportunities.
Third, the specific conditions and methods of the rights offering are also important factors affecting stock prices. Rights offerings can be conducted in various ways such as shareholder allocation, third-party allocation, and public offering, and the rights and impacts on existing shareholders vary according to each method. The shareholder allocation method gives existing shareholders rights to subscribe to new shares, allowing participating shareholders to prevent share dilution. Third-party allocation is a method of allocating new shares to specific investors, used for purposes such as building strategic partnerships. Public offering is a method of selling new shares to an unspecified majority of investors. In Samsung SDI's case, the announcement was made without finalizing the specific offering method and conditions, which may have increased market concerns due to this uncertainty.
Fourth, the company's existing financial situation and alternative fundraising methods should also be considered. Samsung SDI had a financially comfortable situation, holding about 5 trillion won in net cash as of the end of 2024. The fact that it is proceeding with an additional 2 trillion won rights offering in this situation suggests that the scale of future investments will be quite large. Meanwhile, there are various methods for companies to raise funds besides rights offerings, such as issuing corporate bonds, loans, and using existing cash. Rights offerings have the advantage of increasing capital without increasing debt, but they have the disadvantage of share dilution. Investors need to evaluate why the company chose a rights offering over other methods, and whether that decision is rational.
From an investor perspective, it's important to make judgments from a long-term perspective by comprehensively considering the company's position within the industry, the validity of investment plans, and expected investment returns, rather than focusing only on the short-term stock price decline immediately after a rights offering announcement. Especially in rapidly growing industries like the battery industry, securing market position through preemptive investment can be a key factor for long-term success, so it's necessary to evaluate strategic value beyond the short-term share dilution effect.
💡 Samsung SDI's Investment Strategy and Future Growth Potential
Samsung SDI's investment plans include multifaceted growth strategies such as strengthening U.S. market entry, expanding European production bases, and developing next-generation technologies, so let's analyze the future growth potential accordingly.
First, the joint venture with GM is a strategic move to accelerate entry into the U.S. market. Samsung SDI has shown a relatively weak position in the U.S. market so far. While competitors LG Energy Solution and SK On have already established large-scale production bases in the United States, Samsung SDI has not yet established full-scale local production facilities. Especially with the implementation of the U.S. Inflation Reduction Act (IRA), incentives for batteries produced in the United States have been strengthened, which has increased the importance of local production. Establishing a joint venture with GM can be a strategic bridgehead for entering the U.S. market. GM is one of the largest automakers in the United States and is actively pursuing the transition to electric vehicles, making it possible to secure a stable demand source. Additionally, the joint venture form has the advantages of dispersing initial investment risks and utilizing GM's local networks and infrastructure.
Second, the expansion of the Hungary plant has significance in strengthening the response to the European market. Europe is the world's second-largest electric vehicle market, with the transition to electric vehicles progressing rapidly due to strict environmental regulations and government subsidies. Samsung SDI already has battery production facilities in Hungary, through which it supplies batteries to European automakers such as BMW and Volkswagen. The expansion of the Hungary plant can be seen as a strategy to respond to increasing European demand and strengthen cost competitiveness through economies of scale. Particularly in the context of strengthening demands for localization of the battery supply chain in Europe, expanding production bases within Europe has important implications for market accessibility and long-term competitiveness enhancement.
Third, strengthening research and development of all-solid-state batteries is a core strategy for securing technological leadership. All-solid-state batteries are attracting attention as next-generation technology that can overcome the limitations of current lithium-ion batteries. They have the advantage of greatly improving safety and increasing energy density by using solid electrolytes instead of liquid electrolytes. Currently, all-solid-state batteries are in the early stages of commercialization, and global battery companies are actively investing in technology development. Samsung SDI is considered to be in a relatively advanced position in all-solid-state battery technology and aims to secure leadership in this field based on its unique technological competitiveness. All-solid-state battery technology is expected to be fully commercialized after 2030, and preemptive investment now can be an important foundation for preoccupying the future market.
Fourth, if these investment strategies are successfully executed, Samsung SDI's market position and competitiveness could be significantly strengthened. The global battery market is a high-growth industry expected to grow at an average annual rate of over 25% until 2030. Currently, Samsung SDI's share in the global battery market is about 5%, which is lower compared to China's CATL (about 35%) and Korea's LG Energy Solution (about 15%). However, if production capacity is expanded and its position in major markets is strengthened through this investment, there is a possibility of raising the market share to over 10%. In particular, if leadership is secured in next-generation technologies such as all-solid-state batteries, competitiveness in the premium battery market could be significantly strengthened. This is expected to have a positive impact not only on sales growth but also on profitability improvement.
Fifth, however, there are also various risk factors in these investment plans. Above all, there is the possibility of deteriorating profitability due to intensified competition in the battery industry. With all global battery companies now expanding production capacity, concerns about oversupply are being raised in some regions. Additionally, if the growth of the electric vehicle market slows down more than expected, battery demand could also be affected. From a technological perspective, there's also the possibility that the development of all-solid-state batteries may be delayed more than expected, or that competitors may establish technological breakthroughs first. Furthermore, risks due to external factors such as raw material price fluctuations, exchange rate risks, and geopolitical uncertainties should also be considered.
Overall, Samsung SDI's investment strategy aligns with the growth trends of the global battery market and can be evaluated as a balanced approach strengthening the U.S. and European markets and developing next-generation technologies. If the funds raised through this rights offering are invested effectively as planned, they are likely to lead to long-term corporate value increase and shareholder value enhancement. However, various risk factors also exist, such as intensified competition in the battery industry, market volatility, and uncertainties in technology development, so it's necessary to continuously monitor the execution and performance of the investment plans.
4️⃣ In Conclusion
Samsung SDI's announcement of a 2 trillion won rights offering has led to a short-term stock price decline, but this can be seen as an essential strategic choice in the context of rapid growth and intense competition in the global battery market. The multifaceted investment plans for future growth, including investment in a joint venture with U.S.-based GM, expansion of the Hungary plant, and research and development of all-solid-state batteries, are likely to contribute to enhancing corporate value and competitiveness from a long-term perspective.
As battery demand surges due to the explosive growth of the electric vehicle market, global battery companies are all actively investing in expanding production capacity and technology development. In particular, policy changes such as the U.S. Inflation Reduction Act (IRA) are further increasing the importance of establishing local production bases in major markets. In this industry environment, preemptive investment is becoming an essential factor for securing market position and maintaining long-term competitiveness.
While a rights offering has the disadvantage of share dilution from the perspective of existing shareholders, it can be an effective fundraising method for large-scale investments in growth industries. It allows for capital expansion without increasing the debt ratio, enabling aggressive investment while maintaining financial stability. In Samsung SDI's case, if the funds raised through this rights offering are effectively invested, they could lead to strengthened global competitiveness and expanded market share.
However, from an investor perspective, various risk factors should also be considered. There are possibilities of profitability deterioration due to intensified competition in the battery industry, risks of electric vehicle market growth slowdown, uncertainties in technology development, and various external factors such as raw material price fluctuations that can affect investment performance. It should also be taken into account that it may take considerable time to recover capital given the characteristics of large-scale facility investments.
In conclusion, Samsung SDI's rights offering and investment plans can be evaluated as rational choices from a long-term growth strategy perspective, despite the short-term stock price decline. Investors need to make judgments by comprehensively considering the growth potential of the industry, the company's competitiveness, and the validity of investment plans, rather than focusing only on the short-term share dilution effect. Especially in high-growth industries like batteries, aggressive investment for future market preoccupation can be a key factor for long-term success, so an investment perspective that places greater value on long-term growth potential than short-term performance is important.