Battery maker LG Energy Solution (LGES) said its revenue would drop more than 20 percent this year due to a slowdown in global electric vehicle (EV) demand.
LGES, whose customers include Tesla, General Motors, and Hyundai Motor, said potential change in U.S. EV policies after November’s presidential election could further weaken EV demand.
LG Energy Solution reported revenue of KRW 6.1619 trillion, reflecting a 0.5 percent increase from the previous quarter but 29.8 percent decrease year-on-year, for the second quarter.
The company’s operating profit was KRW 195.3 billion, marking a 24.2 percent increase quarter-on-quarter but a 57.6 percent decline year-on-year. The operating profit margin stood at 3.2 percent.
Chang Sil Lee, CFO of LG Energy Solution, attributed the revenue increase to higher shipments driven by new EV model launches and growth in energy storage system (ESS) battery sales for power grids. However, the company faced challenges due to a slowdown in EV demand and declining metal prices impacting the average selling price (ASP).
The operating profit was supported by the Inflation Reduction Act (IRA) tax credit, which more than doubled from the previous quarter due to increased volume in North America. The estimated IRA tax credit amount was KRW 447.8 billion. Without this credit, the company would have recorded a quarterly operating loss of KRW 252.5 billion.
LGES slashed its estimated size of the U.S. federal tax credit it would receive this year under the Inflation Reduction Act to 30-35 gigawatt hours (Gwh) from 45-50 Gwh due to demand slowdown, pointing to a potential drop in profitability.
Business Achievements and Strengths
Despite global EV demand slowdowns, LG Energy Solution achieved notable milestones:
The company secured its first large-scale supply agreement for LFP batteries with Renault Group’s Ampere, marking a significant entry into a segment dominated by Chinese manufacturers.
It began mass production and shipments from its joint venture plant with Hyundai Motor Group in Indonesia, establishing another EV battery production hub in Asia.
In the ESS battery sector, LG Energy Solution secured a large-scale supply agreement for power grids in Arizona (4.8GWh).
The company also strengthened its raw material supply chain by securing lithium spodumene through agreements with an Australian lithium producer and made advancements in battery-related technologies, including AI algorithms for cell designs and a partnership with Analog Devices, Inc. on cell temperature measurement technology.
Strategic Plans
In response to the slow EV market growth, LG Energy Solution revised its annual guidance, now expecting a revenue decrease of more than 20 percent from last year. The company also lowered its expected capacity eligible for the IRA tax credit from 45-50GWh to 30-35GWh due to adjustments in ramp-up speed.
Despite the challenging market environment, LG Energy Solution anticipates increased shipments driven by rising demand in North America and Europe, alongside new EV model launches. The ESS battery business is expected to benefit from increased sales from power grid projects.
To counter market uncertainties, the company plans to optimize operations and improve profitability by adjusting ramp-up speeds, scaling down investments, and converting existing lines for other applications. It will also focus on launching new products like 4680 cells and expanding ESS LFP battery production.
Additionally, LG Energy Solution aims to enhance its product and technology portfolio, explore software-based new businesses such as battery-as-a-service (BaaS) and battery management systems (BMS), and improve cost competitiveness by expanding direct sourcing from critical minerals to precursors and investing in upstream suppliers.
David Kim, CEO of LG Energy Solution, emphasized the company’s commitment to navigating market challenges and establishing strong competitiveness to lead the future of the battery industry.
Conclusion
LG Energy Solution is navigating a challenging market with strategic adjustments and technological advancements, aiming to solidify its position as a leader in the battery industry despite the current headwinds.
LGES forecast global EV market growth would slow to slightly above 20 percent this year from 36 percent last year. It said annual revenue will drop after previously expecting mid-single percentage growth.