LG Energy Solution (LGES), a South Korean battery manufacturer, announced an anticipated first-quarter operating loss of 208 billion won (approximately $192 million CDN) due to decreased demand from electric vehicle (EV) manufacturers. This figure is higher than the LSEG SmartEstimate prediction of a 160 billion won loss, which was based on analysts with a track record of accuracy.
Key points include:
– LGES, a supplier to Tesla, General Motors, and Hyundai Motor, is experiencing reduced EV battery demand, with GM temporarily halting operations at a Detroit EV plant until April.
– Revenue is expected to decline by 2.5% to 6.6 trillion won compared to the previous year.
– The quarterly earnings forecast incorporates tax incentives from the U.S. Inflation Reduction Act for LGES’s U.S.-based battery production, offsetting the operating loss to 398 billion won without these credits.
– To counterbalance the EV battery market decline, LGES is shifting focus towards expanding energy storage systems (ESS) demand driven 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 projected ESS revenue of around 2.8 trillion won by 2025 according to Nomura estimates.
Industry analysts highlight the potential benefits for South Korean battery manufacturers like LGES from the U.S. CHARGE Act, which seeks to restrict imports of certain Chinese-made energy storage systems, citing security concerns related to remote monitoring capabilities.
LGES, the parent company of NextStar Energy in Windsor, Ont., initially established a massive battery cell factory to cater to the EV battery market. However, due to the EV market downturn, the focus has shifted towards energy storage systems. The plant’s flexibility allows it to produce batteries for both sectors going forward.
Canadian authorities have pledged up to $16 billion in subsidies for NextStar, which was originally a collaboration between automaker Stellantis and LG Energy Solution.
LGES is scheduled to unveil detailed earnings on April 30.