LG Chem "No More Large-Scale Battery Recalls in the Future" (Comprehensive)

Q3 Earnings Conference Call
Operating Profit Down 20% YoY Reflecting Recall Provisions
"Advanced Quality Inspection and Strengthened Management
LFP Has Low Density and Is Heavy, Applied First to ESS"

LG Chem Daesan Plant NCC

[Asia Economy Reporter Choi Dae-yeol] LG Chem stated on the 25th that the likelihood of another large-scale battery recall, which hampered its third-quarter performance this year, is low. The lithium iron phosphate (LFP) batteries, which have recently attracted attention in the domestic and international battery industries, will be primarily produced for energy storage system (ESS) applications rather than electric vehicles.

At a conference call held after the earnings announcement, the company explained, "Recently produced batteries apply a design with enhanced safety and have improved manufacturing processes to fundamentally reduce the possibility of defects." It added, "We have advanced quality control and inspection, further lowering the chance of defective products being released." Furthermore, it stated, "For any safety issues that may still occur, we have strengthened risk management and enhanced the diagnostic functions of the battery management system (BMS), so the possibility of repeated large-scale recalls is nonexistent."

Following the fires involving Hyundai Motor's Kona and General Motors (GM) Bolt, both automakers decided on a full recall, and LG Chem shared the recall costs after consultations. The Kona recall was reflected in the first-quarter earnings, while the provision for the Bolt recall was accounted for in this third quarter's results, shared with LG Electronics. LG Chem's third-quarter operating profit was 727 billion KRW, and if the recall provision had not been recorded as a loss, it is estimated that operating profit would have been around 1.35 trillion KRW, avoiding a loss of approximately 623 billion KRW. Sales increased by 41% year-on-year to 10.6102 trillion KRW.

LG Chem Sales and Operating Profit by Business Division

Regarding the use of LFP batteries, the company views ESS as more suitable than electric vehicles. ESS also uses large-scale batteries, and due to the lower energy density and heavier weight, cost competitiveness is crucial, making ESS applications more appropriate, the company explained. LFP batteries are mainly used by Chinese electric vehicle manufacturers, but recently, as other automakers like Tesla have shown increased interest, there is a growing expectation that LFP use will expand in low-cost and entry-level electric vehicles. Domestic battery companies, including LG, primarily develop and supply nickel-manganese-cobalt (NMC) batteries.

The company stated, "LFP has cost competitiveness and its application in electric vehicles is increasing, but its heaviness and low energy density remain a shared challenge for battery and automakers to improve together." It added, "We understand that Tesla is expanding LFP use only in low-cost models while maintaining high-nickel batteries for premium models." The company also revealed, "We are developing low-cost compounds that can overcome these disadvantages for electric vehicle applications."

With the expansion of electric vehicle adoption, the battery market is expected to steadily grow. The company said, "By 2025, we will secure battery production capacity exceeding 430 GWh, of which pouch cells will account for about 310 GWh and cylindrical cells about 120 GWh."

LG Energy Solution Pouch-Type Electric Vehicle Battery

Regarding the petrochemical business in the fourth quarter, the company forecasted, "Although regular plant maintenance is scheduled, we expect to maintain solid performance due to supply and demand effects from China's power restrictions and rising coal prices." The battery business (LG Energy Solution) is also expected to continue growth as electric vehicle sales recover and IT demand increases. The advanced materials division, despite the seasonal off-season, plans to expand its business centered on battery materials such as separators to sustain growth.

LG Chem Chief Financial Officer Cha Dong-seok said, "Despite internal and external uncertainties, excluding one-time factors (recall provisions), we maintained sales growth and a solid operating profit margin of around 13%." He added, "We will focus on nurturing eco-friendly sustainability businesses and further expand the battery materials business to become a growing company."

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