"Ending the Deficit Streak"... Growing Expectations for LG Electronics' Automotive Components Business

Photo by LG Electronics

[Asia Economy Reporter Kim Heung-soon] LG Electronics posted its highest-ever performance last year despite the COVID-19 pandemic and expressed optimism for multiple business sectors this year. In particular, the automotive components business, identified as a future growth area, attracted significant attention both internally and externally. Alongside the company’s smartphone business, which had suffered losses for several years, the automotive components division drastically reduced its losses last year and announced plans to turn profitable starting this year.

According to LG Electronics’ performance last year, the Vehicle Components (VS) Business Division, responsible for vehicle infotainment and electric vehicle parts, recorded annual sales of KRW 5.8015 trillion, the highest ever. In the fourth quarter of last year, its sales reached KRW 1.9146 trillion, ranking third after the Home Appliance & Air Solution (H&A) Business Division (KRW 5.5402 trillion) and the Home Entertainment (HE) Business Division, which oversees TV business (KRW 4.283 trillion). This indicates that the VS Business Division is emerging as a core business sector for LG Electronics.

The VS Business Division posted an operating loss of KRW 2 billion in the fourth quarter of last year, significantly narrowing its deficit compared to previous periods. Earlier, in the second quarter of last year, the operating loss exceeded KRW 200 billion, and the third quarter loss was KRW 66 billion. Although the division had recorded losses for 20 consecutive quarters since the first quarter of 2016, the rebound in the previous quarter has boosted confidence in the business outlook for this year.

Jinyong Bae, Head of VS Management at LG Electronics, emphasized, "The top priority for the VS Business Division this year is to turn profitable. Although there is market uncertainty in the first half due to shortages in automotive semiconductors, new projects that began mass production last year will drive the goal of achieving operating profit in the second half of this year."

LG Electronics Headquarters
[Image source=Yonhap News]

After the VS Business Division recorded significant losses in the second quarter of last year, LG Electronics sought changes. Judging the future vehicle market to have high growth potential, the company decided in December last year to establish a joint venture (JV) with Magna International, the world’s third-largest automotive parts supplier, in the electric vehicle powertrain sector.

The company expects the overall sales of the VS Business Division to grow by more than 15% annually through 2024. The joint venture with Magna is anticipated to achieve an even higher average annual growth rate of 50%. The mid-to-long-term goal is to achieve an operating profit margin of over 5% across all products. Bae stated, "The aim of the automotive components business is to grow into a global top-tier automotive parts supplier. We will strengthen software capabilities in infotainment and expand the electric vehicle parts business, focusing on electric vehicle drive components, together with the newly established joint venture."

Despite the coexistence of expectations and concerns about economic recovery amid COVID-19 uncertainties, the market for eco-friendly vehicles, led by electric vehicles, is expected to grow rapidly. This is why the automotive components business is confident about its rebound. An industry insider said, "This year, policies worldwide will continue to strengthen eco-friendly initiatives, and the market growth in related business sectors will accelerate further."

This content was produced with the assistance of AI translation services.