[Concall] LG Energy Solution "Temporary Decrease in Q3 Sales" (Comprehensive)

Customer Demand with Accumulated Inventory Likely to Be Deferred to Q4

LG Energy Solution Ochang Energy Plant view. Photo by LG Energy Solution

LG Energy Solution, the largest battery company in South Korea, expects a temporary decline in sales in the third quarter of this year.

Lee Chang-sil, Chief Financial Officer (CFO) of LG Energy Solution, stated during the Q2 earnings conference call on the 27th, "Some major customers in Europe have somewhat high inventory levels, so they may adjust their product purchase timing to the fourth quarter." He explained, "Considering this comprehensively, third-quarter sales are expected to slightly decrease compared to the second quarter." However, he added, "Customer demand in the U.S. market remains quite strong, and some customer demand temporarily deferred in the third quarter is expected to recover in the fourth quarter," and "We expect to achieve sales growth of over 30% compared to last year."

He continued, "Based on increased shipments, we will make every effort to achieve a single-digit to mid-to-high level operating profit margin through economies of scale, productivity improvements, and cost reductions, even excluding the IRA effect."

On the same day, LG Energy Solution announced consolidated Q2 sales of KRW 8.7735 trillion and operating profit of KRW 460.6 billion. Compared to the same period last year, sales increased by 73.0% and operating profit by 135.5%. Compared to the previous quarter, sales rose by 0.3%, while operating profit and net income decreased by 27.3% and 17.2%, respectively. The Q2 results included an expected tax credit of KRW 110.9 billion from the Advanced Manufacturing Production Credit (AMPC) clause under the U.S. Inflation Reduction Act (IRA), which was included in operating profit.

The Q2 operating profit decreased by KRW 151 billion from the preliminary results announced earlier this month (KRW 611.6 billion). This was due to material costs and cost increases incurred during the recall process of General Motors (GM)'s electric vehicle 'Bolt EV,' resulting in a KRW 151 billion burden. LG Energy Solution explained, "This is because, according to an agreement with the customer, the increased material costs incurred during the GM recall process were additionally reflected as a one-time provision."

CFO Lee Chang-sil said, "Operating profit slowed compared to the previous quarter due to a temporary increase in manufacturing costs caused by timing differences in raw material price reflection and the provision for GM recall costs," but added, "Excluding one-time costs, the operating profit margin has significantly improved compared to the same period last year, maintaining a stable trend through continuous productivity improvements and cost efficiency."

He also expressed a determination not to rely on tax credits under the IRA. CFO Lee said, "It is true that there are doubts about the sustainability of the IRA," and added, "Due to the risk of regulatory volatility, we plan to secure fundamental competitiveness and realize growth focused on independent profitability without relying on it." He further stated, "In Canada, there is a similar system to the IRA, but there is a significant gap between expectations and reality, so through extreme measures such as halting plant construction and persistent requests, we confirmed that the same system would be applied," and "We plan to make the local plant a key battery hub in the North American region."

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