LG Electronics, Despite Record Quarterly Sales... Hampered by 'GM Recall Provision' (Comprehensive)

LG Electronics Surpasses Quarterly Sales of 18 Trillion Won for the First Time Ever
GM EV Recall Provision of 480 Billion Won
Electronics Division Expected to Return to Profit in 4Q After One-Time Costs Removed

[Asia Economy Reporter Su-yeon Woo] LG Electronics achieved its highest-ever quarterly performance in the third quarter of this year, but profitability was hampered by the provision for GM electric vehicle recall costs. Thanks to the simultaneous growth of the home appliances and TV businesses, LG Electronics set a new sales record in the 18 trillion KRW range, but operating profit halved compared to the previous year due to the one-time reflection of provision costs approaching 500 billion KRW.

On the 12th, LG Electronics announced preliminary figures showing that its third-quarter sales this year reached 18.7845 trillion KRW, a 22% increase compared to the same period last year. This is the first time LG Electronics' quarterly sales (excluding MC business division profits and losses) have exceeded 18 trillion KRW, marking the highest quarterly sales in history. The previous record was 17.8124 trillion KRW in the first quarter, when 'COVID-19 pent-up demand' peaked, and the new sales record was set again after just one quarter.

Home Appliances & TV Drive Performance... Auto Parts Business Recall Provision '480 Billion KRW'

Industry insiders believe that LG Electronics drove overall sales growth by increasing sales of new lifestyle home appliances and premium products such as OLED TVs. Until the first quarter, shipment volumes increased due to rising non-face-to-face demand, but now structural performance improvement momentum has been secured through an increase in average selling price (ASP). In particular, high value-added home appliances are gaining popularity in overseas markets, and in the TV business sector, the increase in OLED TV shipments combined with the decline in LCD panel prices has resulted in significant cost reduction effects.

On the other hand, third-quarter operating profit was preliminarily estimated at 540.7 billion KRW, down 49% year-on-year due to the impact of the provision for GM electric vehicle recall costs in the auto parts division. Compared to operating profits exceeding 1 trillion KRW in the third quarter of last year, this represents a halving. However, it is estimated that operating profit would have exceeded 1 trillion KRW if one-time costs had not been reflected.

LG Electronics explained that it reflected an additional provision of 480 billion KRW in this quarter alone, and combined with the amount reflected in the second quarter (234.6 billion KRW), the total provision set so far amounts to 714.6 billion KRW.

An LG Electronics official stated, "The recall will proceed with full module and pack replacement for early production units, and a module selective solid-state method using diagnostic software for recent production units," adding that "the cost scale may change during the recall process," indicating the possibility of additional recall costs being reflected.

Auto Parts Business Hinders LG Electronics' Performance... Long-term Growth Engine 'Still Valid'

Experts predict that electric vehicle recall costs may continue to be a performance obstacle from the second quarter through the third and fourth quarters of this year, but from next year onward, after all provisions are exhausted, the auto parts business is expected to get back on track. This is based on the firm belief that despite short-term cost burdens, the auto parts business will remain LG Electronics' long-term growth engine.

Industry insiders expect LG Electronics' auto parts division to return to profitability in the fourth quarter and achieve sales of 10 trillion KRW next year. Sales growth is estimated to be around 15-20% annually through 2024. The synergy effect of the joint venture 'LG Magna Powertrain' established with Magna, the world's third-largest auto parts manufacturer, is also anticipated. For this reason, the 'COVID effect' that drove home appliance and TV demand until this year is expected to gradually disappear from next year as vaccine coverage expands, and the core axis of LG Electronics' main business is expected to shift to the auto parts business.

Kim Rok-ho, a researcher at Hana Financial Investment, said, "Although there are concerns about a slowdown in home appliance and TV demand in the 'With COVID' era, concerns about home appliances have already been priced in, and the benefits of untact demand for TVs were limited, so the demand slowdown is expected to be minimal. The mid- to long-term investment points for LG Electronics' future growth engine, the auto parts business, remain valid."

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