South Korean battery manufacturer LG Energy Solution (LGES) announced a projected first-quarter operating loss of 208 billion won (about $192 million CDN) due to reduced demand from electric vehicle (EV) manufacturers impacting earnings. This figure deviates from the LSEG SmartEstimate prediction of a 160 billion won loss, which favored consistently accurate analysts.
Key points to note include:
– LGES, a supplier to companies like Tesla, General Motors, and Hyundai Motor, faces challenges with decreased demand for EV batteries, exemplified by General Motors temporarily halting operations at a Detroit EV facility until April.
– LGES anticipates a 2.5% decline in revenue to 6.6 trillion won compared to the previous year.
– The earnings forecast incorporates tax incentives under the U.S. Inflation Reduction Act for the company’s U.S.-based battery production. Excluding these credits, LGES would have reported an operating loss of 398 billion won.
– To counterbalance the decline in EV battery demand, LGES is concentrating on expanding its energy storage systems (ESS) segment, driven by increasing electricity requirements for AI data centers.
– LGES aims to triple its ESS revenue in 2021 compared to the previous year, with estimations by Nomura projecting ESS revenue to reach around 2.8 trillion won by 2025.
– Analysts suggest that the CHARGE Act, recently introduced in the U.S. House to restrict imports of specific Chinese-made energy storage systems, could present opportunities for South Korean battery manufacturers, citing concerns over potential security risks associated with Chinese-manufactured systems.
LG Energy Solution, the parent company of NextStar Energy in Windsor, Ontario, initially constructed a large battery cell factory to cater to the EV battery market. However, due to the sluggish EV market, the focus has shifted towards energy storage systems. The facility is adaptable to produce batteries for both sectors in the future.
NextStar Energy has received commitments of up to $16 billion in subsidies from Canadian governments. Originally established as a joint venture between automaker Stellantis and LG Energy Solution, LGES is scheduled to release detailed earnings on April 30.
