LG Energy Solution, Virtually Turning to Deficit... "Continued Preemptive Investment in North America" (Comprehensive)

1Q AMPC Benefits Excluded, 31.6 Billion Deficit... Meeting Consensus
"Continued Proactive Investment in North America Despite Chasm Phenomenon"

The global electric vehicle market has fallen into a temporary demand slump (chasm), causing LG Energy Solution's performance to plummet. Excluding U.S. government subsidies, the company returned to an operating loss.

LG Energy Solution announced on the 5th that its operating profit for the first quarter was 157.3 billion KRW, a 75.2% decrease compared to the same period last year. Sales recorded 6.1287 trillion KRW, down 29.9% year-on-year. Compared to the previous quarter, sales decreased by 23.4% and operating profit by 53.5%.

The tax benefits under the U.S. Inflation Reduction Act (IRA) Advanced Manufacturing Production Credit (AMPC) amounted to 188.9 billion KRW, and excluding this, there was an operating loss of 31.6 billion KRW.

This performance was somewhat expected due to the contraction in the electric vehicle market. The FnGuide consensus forecast predicted sales between 6.2 trillion and 6.5 trillion KRW, and operating profit between 99.4 billion and 220.8 billion KRW. Both sales and operating profit were not significantly different from expectations.

However, recording historically low performance levels following the fourth quarter of last year has raised concerns about how long the electric vehicle chasm effect will continue. Tesla, the global number one electric vehicle seller, also saw its vehicle sales drop 8.5% year-on-year to 386,810 units in the first quarter.

Electric vehicle companies have launched large-scale price cuts since last year to respond to the decline in electric vehicle demand, but have not achieved significant results. The impact is also affecting battery companies with long-term supply contracts.

Nevertheless, LG Energy Solution continues proactive investments in the North American region despite the chasm phenomenon. On the 3rd (local time), LG Energy Solution broke ground on a new cylindrical and energy storage system (ESS) lithium iron phosphate (LFP) battery production plant in Arizona, USA. With a total investment of 7.2 trillion KRW, the cylindrical plant and ESS LFP plant are scheduled to begin operations in 2026.

Additionally, the second plant of Ultium Cells, a battery joint venture with General Motors (GM), has entered commercial operation. This plant produced its first battery cell just two and a half years after construction began and recently delivered it to customers.

With the expansion of production capacity in North America, IRA AMPC benefits are also expected to increase. Under the IRA, battery cells and modules produced in the U.S. receive tax credits of 35 USD per kilowatt-hour (kWh) for cells and 10 USD per kWh for modules. Last year, LG Energy Solution received a total of 670 billion KRW in benefits from AMPC.

LG Energy Solution plans to invest more than 32 trillion KRW by 2026 to expand production capacity in North America to 342 GWh. Specifically, it will increase production capacity by 259 GWh through joint ventures with GM, Hyundai Motor Company, Stellantis, Honda, and others, and secure an additional 83 GWh of production capacity through independent plants.

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