South Korean battery manufacturer LG Energy Solution (LGES) announced a projected first-quarter operating loss of 208 billion won (approximately $192 million CDN) on Tuesday due to reduced demand from electric vehicle (EV) manufacturers impacting profits. This figure exceeds the LSEG SmartEstimate forecast of a 160 billion won loss, which was based on analysts with a consistent track record of accuracy.
Among the key points highlighted are:
– LGES, a supplier to prominent companies like Tesla, General Motors, and Hyundai Motor, is facing challenges stemming from a decline in EV battery demand. Notably, one of its major customers, GM, has temporarily halted operations at a Detroit EV plant until April.
– LGES anticipates a 2.5% decrease in revenue to 6.6 trillion won compared to the previous year.
– The company’s quarterly earnings guidance incorporates tax credits received under the U.S. Inflation Reduction Act for its battery production in the United States. Excluding these credits, LGES would have registered an operating loss of 398 billion won.
– To counterbalance the weakened demand in EV batteries, LGES is concentrating on the growing market for energy storage systems (ESS), driven by the increasing need for electricity in AI data centers.
– LGES aims to triple its ESS revenue this year compared to the previous year, with Nomura estimating the company’s ESS revenue to reach around 2.8 trillion won by 2025.
– Analysts have pointed out that the recently introduced U.S. House bill, the CHARGE Act, which aims to restrict imports of specific Chinese-made energy storage systems, could present opportunities for South Korean battery manufacturers. The bill raises concerns about potential surveillance capabilities in energy storage systems imported from China to the U.S.
LG Energy Solution, the parent company of NextStar Energy in Windsor, Ontario, initially established a massive battery cell factory to cater to the electric vehicle battery market. However, with the EV market downturn, the focus has shifted towards energy storage systems. The facility is adaptable to produce batteries for both sectors in the future. Canadian authorities have committed up to $16 billion in subsidies to support NextStar, which was originally formed as a joint venture between automaker Stellantis and LG Energy Solution.
LGES is scheduled to release detailed earnings on April 30.