LG Energy Solution's Q2 Operating Profit Plummets 57.5%... "Annual Revenue Expected to Drop 20%"

Sales down 29.8% YoY to 6.1619 trillion KRW
President Kim Dongmyeong: "Agile response... Differentiating customer value"
Converting existing EV production lines to energy storage devices
Adjusting speed of new capacity expansion and considering reduction of expansion if necessary

LG Energy Solution announced on the 25th that its operating profit for the second quarter of this year recorded 195.3 billion KRW, a 57.5% decrease compared to the same period last year. Excluding the U.S. Advanced Manufacturing Production Tax Credit (AMPC) of 447.8 billion KRW, the company posted a loss of -252.5 billion KRW. The operating loss widened compared to the previous quarter. Sales amounted to 6.1619 trillion KRW, down 29.8% year-on-year. Both sales and operating profit fell short of market expectations.

Lee Chang-sil, CFO of LG Energy Solution, said during a conference call after the earnings announcement, "The pace of electrification adjustment by major OEMs due to prolonged high interest rate trends and weakened consumer sentiment is stronger than expected." He added, "We had expected lithium hydroxide, which has the greatest impact on product prices, to remain around $20 per kg, but it is currently below $14. The weakness has continued through July, so battery prices in the second half are also expected to remain low."

Fixed cost burdens were also significant. The CFO stated, "The fixed cost burden was substantial due to reduced operating rates at European and Chinese plants caused by decreased demand. However, the effect of the Inflation Reduction Act (IRA) tax credit more than doubled thanks to strong battery sales in the North American region."

Downward Revision of This Year’s Sales and IRA Tax Credit Forecasts

LG Energy Solution Headquarters, Yeoui-daero, Yeongdeungpo-gu, Seoul. Photo by Jinhyung Kang aymsdream@

LG Energy Solution expects a challenging business environment to continue amid ongoing external uncertainties. The CFO said, "Our company's sales, initially forecasted to grow in single digits this year, are now expected to decline by more than 20% year-on-year due to a sharper-than-expected slowdown in shipment growth and price impacts from falling metal prices." Additionally, the annual IRA tax credit forecast was revised downward from 45?50 GWh to 30?35 GWh following adjustments in major customers' electric vehicle production targets.

LG Energy Solution stated, "The growth rate of electric vehicles in the North American market this year has been revised down from the mid-30% range to the low 20% range, representing the largest change. The European market is also expected to see growth slow from the low 20% range to the mid-teens, which is likely to impact global battery sales."

Kim Dong-myung: "More Difficult Than Expected but Responding Agilely... Differentiating Customer Value"

In response, the company plans to adjust the speed of new and expanded capacity and convert existing electric vehicle production lines to energy storage systems (ESS) with higher growth potential to address the chasm. LG Energy Solution said, "We will control the pace of new capacity expansion and consider reducing expansion scale if necessary," adding, "We will also pursue other applications such as energy storage systems (ESS) and new production lines." Furthermore, "We aim to maximize capacity utilization at each existing production base," and "We will improve profitability by reducing fixed cost burdens and optimizing operations through operational efficiency."

At the same time, the company will review ongoing investment plans and execute investments according to strategic priorities. This approach aims to alleviate fixed cost burdens, enhance cost efficiency, and further improve profitability.

Quarterly Performance Trends of LG Energy Solution [Image Source=LG Energy Solution]

Efforts will also be made to mass-produce new products. Full-scale mass production of the new cylindrical 46-series product is scheduled for the second half of the year, and production volume of the ESS LFP product, which began mass production at the end of last year, will be expanded to meet demand in North America and Europe. Additionally, a pilot line for dry electrode processes will be established at the Ochang Energy Plant to accelerate securing future technologies.

The company will also diversify its customer and business portfolio. LG Energy Solution stated, "We are in discussions with various customers for orders of affordable products such as LFP and high-voltage Mid-Ni," and "Since the 46-series has attracted high interest from various automakers, we will focus on diversifying products that can enhance customer value." Efforts will also be made to secure mid- to long-term future growth engines based on services and software such as BaaS (Battery as a Service) and BMS (Battery Management System).

Product cost competitiveness will be strengthened as well. The scope of direct sourcing of raw materials will be expanded from key minerals to precursors, and equity investments in upstream companies will be increased to enhance supply chain competitiveness. In addition, production efficiency will be improved by simplifying processes and accelerating the application of smart factories.

Kim Dong-myung, CEO of LG Energy Solution, said, "The business environment is more difficult than expected," but added, "We will respond agilely to changes while firmly establishing fundamental competitiveness and differentiated customer value to solidify our position as a global leader in the future battery industry."