South Korean battery manufacturer LG Energy Solution (LGES) announced on Tuesday an expected first-quarter operating loss of 208 billion won (approximately $192 million CDN) due to reduced demand from electric vehicle (EV) manufacturers impacting profits. This projection contrasts with the LSEG SmartEstimate forecast of a 160 billion won loss, which favored consistently accurate analysts.
Key points include:
– LGES, a supplier to Tesla, General Motors, and Hyundai Motor among others, faced challenges with declining EV battery demand, notably with General Motors temporarily halting operations at a Detroit EV plant until April.
– LGES anticipates a 2.5% revenue decrease to 6.6 trillion won compared to the previous year.
– The quarterly earnings projection incorporates tax credits from the U.S. Inflation Reduction Act for the company’s U.S.-based battery production. Excluding these credits, LGES would have reported an operating loss of 398 billion won.
– In response to EV battery market weaknesses, LGES is emphasizing the growth of energy storage system (ESS) demand, driven by increasing electricity requirements for AI data centers.
– LGES aims to triple its ESS revenue this year compared to the previous year and is estimated to achieve around 2.8 trillion won in ESS revenue by 2025, according to Nomura.
– Analysts suggest that the U.S. House bill, the CHARGE Act, which seeks to restrict imports of specific Chinese-made energy storage systems, may present opportunities for South Korean battery manufacturers due to concerns over potential remote monitoring capabilities in Chinese-manufactured systems.
LGES oversees NextStar Energy in Windsor, Ontario, where a large battery cell factory initially intended for the EV battery market has shifted focus to energy storage systems amid declining EV market conditions. The facility is adaptable to produce batteries for both sectors going forward.
Canadian governments have pledged up to $16 billion in subsidies to NextStar, initially a joint venture between automaker Stellantis and LG Energy Solution.
LGES is scheduled to release detailed earnings on April 30.