[Click eStock] "LG Energy Solution, Positive Outlook for Mid to Long Term Despite Q4 Loss Forecast"

Expected to Turn to Deficit in Q4... Short-Term Profitability Deterioration
Mass Production of 4680 Batteries, Focus on Order Expansion and Growth Potential
Possibility of Breaking Even with Tesla Supply Contract Signing

Heungkuk Securities analyzed on the 26th that although LG Energy Solution is expected to post a loss in the fourth quarter, its mid- to long-term growth potential remains positive. They maintained a 'Buy' investment rating and a target price of 578,000 KRW. The closing price of LG Energy Solution on the previous trading day was 405,000 KRW.

According to Heungkuk Securities, LG Energy Solution is expected to turn to a loss in the fourth quarter due to poor performance. Short-term profitability deterioration seems inevitable as inventory adjustments by major clients and raw material disposal costs overlap. However, the mid- to long-term growth potential is still positively evaluated due to securing order momentum from the mass production of 4680 batteries.

LG Energy Solution’s fourth-quarter sales are expected to be 6.7 trillion KRW, down 2.1% from the previous quarter and 15.9% from the same period last year. Operating loss is projected at 110.5 billion KRW, marking a turnaround to a loss, and the scale of IRA (Inflation Reduction Act) AMPC (Advanced Manufacturing Production Credit) is also expected to slightly decrease to 437 billion KRW compared to the previous quarter.

In particular, a one-time factor of raw material obsolete inventory disposal costs for electric vehicle batteries occurred, impacting the deterioration of performance. Although sales increased mainly in the European market, profitability declined due to battery price reductions.

With the full-scale mass production of 4680 batteries, LG Energy Solution is strengthening its advantageous position in the order competition. The secured order volume so far is approximately 120 GWh, including Mercedes-Benz (50.5 GWh) and Rivian (67 GWh), which are scheduled to be produced at the Arizona plant starting in 2026. This volume is expected to guarantee an annual operating rate of over 50% at the Arizona plant, and if a supply contract with Tesla is signed in the future, the plant is expected to surpass the break-even point. LG Energy Solution plans to start mass production of 4680 batteries at the Ochang mother plant from the first quarter of next year and is also considering production at the Nanjing plant in China.

Jung Jin-su and Ma Geon-woo, researchers at Heungkuk Securities, said, "We have lowered the 2025 EBITDA forecast by 33% from the previous estimate, reflecting battery inventory adjustments by clients and market conditions, but we highly value the strategic value of the 4680 battery and the possibility of strengthening LG Energy Solution’s role within Tesla’s supply chain after the U.S. presidential election." They added, "Despite short-term performance setbacks, LG Energy Solution is expected to strengthen its position in the global battery market through innovative battery technology and expanded orders."