LG Energy Solution "More than Triple Sales in 5 Years... Will Also Raise Operating Profit Margin" (Comprehensive)

Announcement of Mid-to-Long-Term Business Strategy... Focused Selection on Regional, Customer, and Product Portfolios
Expecting Performance Growth in Second Half "Annual Sales Target Raised to 22 Trillion Won"

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] LG Energy Solution has unveiled a mid-to-long-term business strategy aiming to achieve more than triple sales growth within five years. With new electric vehicle launches from client companies continuing from the second half of this year, battery sales are expected to increase, leading to an upward revision of the annual sales target from the previous 19 trillion KRW to 22 trillion KRW.

At the Q2 earnings briefing on the 27th, LG Energy Solution stated, "We will actively pursue expansion of joint ventures with major OEMs in North America, increase supply of cylindrical batteries, and develop new form factors, while continuously exploring new business opportunities to achieve more than threefold sales growth within five years."

They added, "Through securing technological leadership via differentiated material and process development, stable operation of the value chain through upstream equity investments and expansion of long-term supply contracts, and qualitative growth by strengthening quality manufacturing capabilities based on smart factories, we will also raise the operating profit margin to double digits."

First, LG Energy Solution will focus on the rapidly growing North American market. In North America, the company will concentrate on pouch-type batteries through joint ventures with companies like GM, while expanding supply of cylindrical batteries to existing customers such as Tesla and electric vehicle startups.

In the European market, new production bases for cylindrical batteries will be established, and in the Asian market, the company plans to actively respond to customer demand by entering new production bases outside of China.

An LG Energy Solution official explained, "Currently, the global production capacity is relatively high in Asia (59%) and Europe (34%) compared to North America (7%). By 2025, we plan to increase production capacity in the North American market to 45%, establishing a balanced production capacity system with North America (45%), Asia (35%), and Europe (20%)."

In particular, the company will operate a dual form factor centered on pouch and cylindrical types. For pouch-type batteries, premium products will be developed by applying single-particle NCMA cathode materials and silicon anode materials, while also pursuing the development of cost-competitive mass-market products. For cylindrical batteries, early acquisition of mass production technology for the new '4680' form factor will be secured. Next-generation technology development will focus on lithium-sulfur batteries and solid-state batteries.

Additionally, through strengthening quality capabilities and building smart factories, the company will pursue within five years ▲ yield improvement and quality stabilization ▲ process improvement and productivity enhancement ▲ workforce efficiency.

To secure raw materials, direct investments and long-term supply contracts will be increased, and cooperation with major companies will be expanded to establish a battery recycling system. Plans were also announced to enter new battery-related businesses such as Battery-as-a-Service (BaaS) and Energy-as-a-Service (EaaS) aimed at improving energy efficiency.

LG Energy Solution Vice Chairman Kwon Young-soo stated, "Our ultimate goal is to become the most profitable company trusted and loved by customers by providing world-class QCD (Quality, Cost, Delivery) through securing technological leadership and strengthening product competitiveness."

LG Energy Solution 2022 Q2 Earnings Announcement

Following this mid-to-long-term strategy, LG Energy Solution has raised its sales target for this year from the previous 19.2 trillion KRW to 22 trillion KRW.

Cumulative sales for the first half reached 9.4129 trillion KRW, a slight increase of 0.3% compared to the previous year, while operating profit recorded 454.5 billion KRW, down 57.3% from the same period last year.

Lee Chang-sil, Executive Vice President and Chief Financial Officer (CFO) of LG Energy Solution, said, "Profitability declined somewhat due to the impact of China's COVID lockdowns, global logistics disruptions, and timing differences in applying price increases for rising metal costs," but added, "Sales increased steadily due to increased sales of cylindrical batteries for electric vehicles and expanded price-linked contracts for major raw materials."

For the second half, sales are projected to reach 12.6 trillion KRW, representing a 48% increase compared to the same period last year and a 34% rise compared to the first half.