Electric Vehicle Chasm Amid Q3 Earnings Surprise
Sales 6.8 Trillion KRW · Operating Profit 448.3 Billion KRW
LG Energy Solution, which had been experiencing repeated declines in performance amid sluggish demand, succeeded in a turnaround in the third quarter of this year.
LG Energy Solution Achieves Performance Turnaround
On the 8th, LG Energy Solution announced preliminary third-quarter sales of 6.8778 trillion KRW and an operating profit of 448.3 billion KRW. Compared to the previous year, sales decreased by 16.4% and operating profit by 38.7%, but compared to the previous quarter, sales increased by 11.6% and operating profit by 129.5%.
The tax credit under the U.S. Inflation Reduction Act (IRA) Advanced Manufacturing Production Credit (AMPC) amounted to 466 billion KRW; excluding this, the company posted an operating loss of 17.7 billion KRW. The deficit excluding AMPC was significantly reduced compared to 252.5 billion KRW in the second quarter.
As the electric vehicle sales performance of major customers improved compared to the previous quarter, stable supply volumes led to a slight increase in AMPC to 447.8 billion KRW from the previous quarter. Profitability improved due to increased operating rates from expanded supply volumes, alleviation of fixed cost burdens from sales growth, and cost reduction efforts. Sales increased compared to the previous quarter as supply of electric vehicle pouches to major European and North American automakers grew, and sales of energy storage systems (ESS) centered on North American power grid projects expanded.
Attention is focused on whether the performance turnaround achieved amid the electric vehicle chasm (temporary demand stagnation in a growth industry) will continue into the fourth quarter. Recently, the battery industry expects that the suspension of lithium production by CATL has somewhat eased the oversupply issue, which could positively impact battery prices.
First 46mm Cylindrical Battery Order for Mercedes-Benz
Employees at LG Energy Solution's Ochang plant are showcasing the cylindrical batteries developed by LG Energy Solution. Photo by LG Energy Solution
On the same day, LG Energy Solution also announced that it had signed an electric vehicle battery supply contract with a Mercedes-Benz affiliate. The contract period is from 2028 to 2038, with a total supply volume of 50.5 GWh. Although the contract amount was not disclosed, considering the supply volume, it is expected to be in the trillions of KRW range. Industry insiders believe that the order volume is for the '46 series' (46mm diameter cylindrical battery), which is attracting attention as the next-generation cylindrical battery.
The 46 series features an energy capacity five times and output six times higher than the existing 2170 (21mm diameter, 70mm length), and extends driving range by 16% compared to the previous model. Cylindrical batteries have the advantage of standardized specifications, which can improve price competitiveness and yield in large-scale mass production. The 46 series to be supplied to Mercedes-Benz is expected to be produced at LG Energy Solution’s cylindrical battery factory currently under construction in Arizona, USA.
The Arizona cylindrical battery plant is LG Energy Solution’s second standalone factory in North America, with a capacity of 36 GWh, and construction began in April. The industry expects it to be fully operational from 2026. However, LG Energy Solution stated, "We cannot confirm any additional details beyond the disclosed information due to consultations with the customer."
Until now, the 46 series had no actual adoption cases by traditional automakers other than Tesla. The industry views LG Energy Solution’s securing of a large-scale supply contract with a European automaker as highly significant.
Earlier, LG Energy Solution announced at a vision-sharing event that it plans to more than double its sales by 2028 compared to 2023 (33.7455 trillion KRW). Declaring its new corporate vision, "Empower Every Possibility," the company stated it will focus on diversifying products and customers within the electric vehicle business, expanding its customer portfolio to traditional automakers through the 46 series in cylindrical batteries.
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