LG Energy Solution (LGES), a South Korean battery manufacturer, announced a projected first-quarter operating loss of 208 billion won (approximately $192 million CDN) due to decreased demand from electric vehicle (EV) manufacturers. This figure contrasts with the 160 billion won loss forecasted by LSEG SmartEstimate, primarily based on consistently accurate analysts.
Key points include:
– LGES, a supplier to Tesla, General Motors, and Hyundai Motor, faces reduced demand for EV batteries, with a major customer, GM, temporarily 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 earnings guidance for the quarter incorporates tax credits from 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 EV battery market weakness, LGES is focusing on expanding demand for energy storage systems (ESS) driven by increasing electricity requirements for AI data centers.
– LGES aims to triple its ESS revenue this year compared to the previous year, with analysts estimating ESS revenue to reach around 2.8 trillion won by 2025.
– The introduction of the CHARGE Act in the U.S., which aims to restrict imports of certain Chinese-made energy storage systems, could create opportunities for South Korean battery manufacturers like LGES.
LGES, which oversees NextStar Energy in Windsor, Ont., initially established its battery cell factory to cater to the EV battery segment but has shifted focus to energy storage systems due to a declining EV market. The factory now has the flexibility to manufacture batteries for both sectors going forward.
Canadian government commitments of up to $16 billion in subsidies have been made to NextStar, which was originally a collaboration between automaker Stellantis and LG Energy Solution.
A detailed earnings report from LGES is expected to be released on April 30.