South Korean battery producer LG Energy Solution (LGES) announced a projected first-quarter operating loss of 208 billion won (about $192 million CDN) due to decreased demand from electric vehicle (EV) manufacturers impacting profits. This figure deviates from the LSEG SmartEstimate forecast of a 160 billion won loss, primarily influenced by more consistently accurate analysts.
Key details include:
– LGES, a supplier to prominent companies like Tesla, General Motors, and Hyundai Motor, faces reduced EV battery demand, with a major client, General Motors, halting operations at a Detroit EV plant until April.
– LGES anticipates a 2.5% decline in revenue to 6.6 trillion won compared to the previous year.
– The quarterly earnings guidance incorporates tax credits under the U.S. Inflation Reduction Act for the firm’s U.S.-based battery production. Excluding these credits, LGES would have reported an operating loss of 398 billion won.
– To counterbalance the EV battery downturn, LGES is concentrating on expanding demand for energy storage systems (ESS) fueled by increasing electricity requirements for AI data centers.
– In a strategic move, 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 recent introduction of the CHARGE Act in the U.S., aimed at restricting imports of specific Chinese-made energy storage systems, could present opportunities for South Korean battery producers.
LGES, the parent company of NextStar Energy in Windsor, Ont., initially designed its massive battery cell factory to cater to the EV battery market but has shifted focus to energy storage systems due to the sluggish EV market. This plant is adaptable to produce batteries for both sectors in the future.
Canadian authorities have committed up to $16 billion in subsidies to NextStar, which was initially a joint venture between automaker Stellantis and LG Energy Solution.
LGES is scheduled to release detailed earnings information on April 30.