South Korean battery manufacturer LG Energy Solution (LGES) announced a projected first-quarter operating deficit of 208 billion won (approximately $192 million CDN) due to reduced demand from electric vehicle (EV) manufacturers impacting profitability. This figure contrasts with the LSEG SmartEstimate forecast of a 160 billion won loss, which favored analysts noted for their consistent accuracy.
Key details include:
– LGES, a supplier to Tesla, General Motors, and Hyundai Motor, faces a decline in demand for EV batteries, with major customer GM temporarily halting operations at a Detroit EV plant until April.
– Revenue is expected to decrease by 2.5% to 6.6 trillion won compared to the previous year.
– The company stated that the quarterly earnings guidance incorporates tax credits under the U.S. Inflation Reduction Act for its U.S.-based battery production, preventing an operating loss of 398 billion won without these credits.
– To counter the EV battery market downturn, LGES is concentrating on expanding its energy storage systems (ESS) sector, driven by increasing electricity demands for AI data centers.
– LGES aims to triple its ESS revenue in 2021 compared to the previous year, with estimated revenue of approximately 2.8 trillion won in 2025 according to Nomura.
– Analysts suggest that the CHARGE Act, a recent U.S. House bill proposing a ban on certain Chinese-made energy storage systems, could present opportunities for South Korean battery manufacturers, citing concerns over potential security risks associated with Chinese-manufactured systems.
LGES, which oversees NextStar Energy in Windsor, Ontario, initially focused on EV battery production but has shifted towards energy storage systems due to market conditions. The facility has the flexibility to manufacture batteries for both sectors going forward. Up to $16 billion in subsidies have been pledged by Canadian governments to NextStar, initially a collaborative effort between automaker Stellantis and LG Energy Solution.
Detailed earnings from LGES are expected to be disclosed on April 30.