South Korean battery manufacturer LG Energy Solution cautioned about a potential decline in demand early next year due to U.S. tariffs and uncertainties in policies following an increase in quarterly profits. Key clients Tesla and General Motors expressed concerns over the impact of U.S. tariffs and upcoming legislation terminating federal subsidies for electric vehicle (EV) purchases by September 30.
During a conference call, CFO Lee Chang-sil highlighted that the imposition of U.S. tariffs and the premature end of EV subsidies could strain automakers, possibly leading to higher vehicle prices and a slowdown in EV market growth in North America. Despite these challenges, LG Energy Solution mentioned plans to enhance profits in the latter half of the year by ramping up the production of batteries for energy storage systems (ESS) to counterbalance the sluggish EV demand, while also trimming or postponing investment strategies.
One of the limited U.S. manufacturers of LFP batteries, a battery type historically dominated by Chinese competitors, LG Energy Solution divulged its contemplation of repurposing certain EV battery production lines in the U.S. to meet the ESS demand in light of the declining EV market. The company initiated LFP battery production at its Michigan facility in May and aims to escalate the ESS battery production capacity to over 30 gigawatt hours (GWh) by the following year, surpassing the anticipated 17 GWh for the current year.
An analyst at Hyundai Motor Securities, Kang Dong-jin, noted that when LG Energy Solution maximizes plant operations, it could accrue subsidies amounting to nearly 2 trillion won ($1.5 billion US) due to the distinctive selling model of ESS, which includes complete systems rather than just battery cells, elevating average selling prices and profit margins. Kang further emphasized that LG Energy Solution holds a dominant position in the U.S. market as the sole provider of LFP-based ESS, enjoying a competitive edge with minimal competition.
LG Energy Solution disclosed that its operating profit more than doubled in the second quarter, attributed to U.S. subsidies on battery production and the anticipatory stockpiling by select customers in preparation for potential tariffs. The company reported an operating profit of 492 billion won ($358.73 million US) for the April to June period, a significant increase from the 195 billion won profit recorded in the corresponding period of the previous year. LG Energy Solution clarified that excluding a tax credit received under the U.S. Inflation Reduction Act, the operating profit would have been 1.4 billion won.