South Korean battery manufacturer LG Energy Solution (LGES) announced on Tuesday its anticipation of a first-quarter operating deficit 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 predominantly favored consistently accurate analysts.
Key points include:
– LGES, a supplier to prominent companies like Tesla, General Motors, and Hyundai Motor, faces challenges stemming from weakened EV battery demand. Notably, GM has temporarily halted operations at a Detroit EV plant until April.
– LGES foresees a potential 2.5% decrease in revenue to 6.6 trillion won compared to the previous year.
– The quarterly earnings guidance incorporates tax incentives received under the U.S. Inflation Reduction Act for the company’s U.S.-based battery production. Excluding these credits, LGES would have recorded an operating loss of 398 billion won.
– To counterbalance the decline in EV battery demand, LGES is concentrating on expanding its energy storage systems (ESS) segment, driven by the escalating electricity requirements for AI data centers.
– In a bid to triple its ESS revenue this year compared to the previous year, LGES is aiming for significant growth. Nomura estimates the company’s ESS revenue to reach around 2.8 trillion won by 2025.
– Analysts suggest that the recently introduced U.S. House bill, the CHARGE Act, which aims to restrict imports of specific Chinese-made energy storage systems, might present opportunities for South Korean battery manufacturers. The bill raises concerns about potential remote monitoring capabilities in Chinese-manufactured energy storage systems imported to the U.S.
LGES, the parent company of NextStar Energy in Windsor, Ont., initially constructed a sizable battery cell factory to cater to the electric vehicle battery market. However, due to the sluggish EV market, the focus has shifted towards energy storage systems. The facility is adaptable to manufacture batteries for both sectors going forward.
Following Canadian government commitments to provide up to $16 billion in subsidies to NextStar, which was formerly a joint venture between Stellantis and LG Energy Solution, LGES is scheduled to disclose detailed earnings on April 30.