South Korean battery manufacturer LG Energy Solution (LGES) announced a projected first-quarter operating deficit of 208 billion won (approximately $192 million CDN) due to reduced demand from electric vehicle (EV) manufacturers impacting profits. This figure deviates from the LSEG SmartEstimate prediction of a 160 billion won loss, with more weight given to consistently accurate analysts.
Key points include:
– LGES, a supplier to Tesla, General Motors, and Hyundai Motor, faces challenges from diminished EV battery demand, notably with GM temporarily halting operations at a Detroit EV plant until April.
– Revenue is anticipated to decline by 2.5% to 6.6 trillion won compared to the previous year, as per LGES.
– The quarterly earnings guidance incorporates U.S. tax credits under the Inflation Reduction Act for the company’s U.S. battery production. Excluding these credits, LGES would have recorded an operating loss of 398 billion won.
– To counterbalance the EV battery sector weakness, LGES is shifting focus towards expanding energy storage systems (ESS) demand, driven by increased electricity needs for AI data centers.
– LGES aims to triple its ESS revenue this year compared to the previous year, with Nomura estimating ESS revenue to reach around 2.8 trillion won by 2025.
– Analysts suggest that the CHARGE Act, a U.S. House bill introduced to restrict imports of specific Chinese-made energy storage systems, could potentially create opportunities for South Korean battery manufacturers. Concerns surround the possible inclusion of remote monitoring capabilities in energy storage systems imported from China to the U.S.
LGES, the parent company of NextStar Energy in Windsor, Ontario, initially designed its massive battery cell factory to cater to the electric vehicle battery market. However, due to the declining EV market, the focus has shifted towards energy storage systems. The plant’s flexibility now allows for battery production targeting both sectors in the future.
Canadian authorities have committed up to $16 billion in subsidies to NextStar, which initially emerged as a joint venture between automaker Stellantis and LG Energy Solution.
Detailed earnings from LGES are expected to be released on April 30.
