LG Energy Solution "This Year's Facility Investment 7 Trillion Won... Order Backlog 300 Trillion Won as of End of March" (Comprehensive)

Conference Call for Q1 Earnings Presentation on the 27th
"Q2 Sales Expected to Grow Double Digits Compared to Q1"

LG Energy Solution electric vehicle battery factory in Michigan, USA. (Photo by LG Energy Solution)

[Asia Economy Reporter Moon Chaeseok] LG Energy Solution announced on the 27th during its Q1 earnings conference call that this year's capital expenditure (CAPEX) is expected to increase from the previously stated KRW 6.3 trillion to around KRW 7 trillion. The order backlog as of the end of last month was reported to be approximately KRW 300 trillion.

Lee Chang-sil, Executive Vice President and Chief Financial Officer (CFO) of LG Energy Solution, said, "This year, LG Energy Solution's annual CAPEX is expected to be somewhat higher than the KRW 6.3 trillion initially presented, exceeding KRW 7 trillion." He explained, "This is due to the intensive progress in various joint ventures (JVs) and in-house factory expansions, the expansion of North American capacity, and the impact of new contracts such as cylindrical battery facility expansions." Lee added, "We will thoroughly analyze the strategic validity and economic feasibility of investments to improve investment efficiency."

He acknowledged that there are impacts from international supply chain risks such as the sharp rise in prices of key raw materials like lithium, nickel, cobalt, and aluminum, logistics disruptions caused by China's COVID-19 lockdowns, and Russia's invasion of Ukraine. However, he reassured investors by stating that since they have pre-established price-linked contracts and long-term supply agreements with customers, risk management is sufficiently feasible.

Lee said, "Although not 100%, we can say that cost increases are largely covered through price linkage mechanisms and long-term supply contracts, enabling stable procurement of raw materials." He added, "A similar situation is expected to continue throughout this year, but if we overcome the crisis well, our market position will rather be strengthened." He also mentioned, "From what I have heard, CATL suffered significant losses in Q1 due to its high dependence on the Chinese market and the severe impact of logistics disruptions caused by regional COVID-19 outbreaks." He concluded, "Ultimately, success or failure will hinge on 'QCD' (Quality, Cost, Delivery) and '4M' (Man, Machine, Material, Method), so we will steadily execute our strategy without being swayed by short-term fluctuations."

One of LG Energy Solution's prides is its 'five-corner production system' spanning North America, Europe, China, Indonesia, and Korea. This expresses confidence in risk management even amid unexpected variables such as wars or pandemics, a point emphasized again during this conference call. Lee explained, "We focus on the electric vehicle markets in the U.S. and Europe, and most of our order backlog comes from General Motors (GM), Stellantis, Volkswagen, Hyundai Motor·Kia, Renault, and Volvo in the U.S. and Europe." He added, "As of the end of last month, we have secured an order backlog of KRW 300 trillion."

According to Lee, by 2025, the regional capacity share is expected to be 41% in North America, 37% in Asia, and 22% in Europe, with North America holding the largest share. The total capacity for all products, including automobiles and small energy storage systems (ESS), is predicted to reach about 200 GWh (gigawatt-hours) by the end of this year and approximately 520 GWh by 2025, more than 2.5 times the current level. Lee stated, "By 2025, we plan to operate a total of six sites in North America through expanding the GM JV, promoting the Stellantis JV, constructing a cylindrical battery in-house factory, and expanding existing pouch factories." He added, "This will create synergy with capacity expansions at existing plants in Ochang, Chungcheongbuk-do, China, Poland, and the operation of the Hyundai JV plant in Indonesia."

Lee forecasted that second-quarter sales will record double-digit growth compared to the first quarter. He said, "We expect second-quarter sales to grow by double digits or more compared to the first quarter." He added, "Despite China's lockdown measures due to COVID-19, we have agreed with customers to supply additional volumes once the lockdown is lifted, so the impact will not be significant." He also said, "Profitability will not deviate significantly from the first quarter level." He acknowledged, "It is true that the business environment is challenging due to soaring raw material prices and logistics disruptions, but we will persistently continue efforts to improve productivity and reduce costs."

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