LG Energy Solution's Mixed Q2: Revenue Up, Profits Down
LG Energy Solution has announced its second-quarter earnings, revealing a mixed performance amid market challenges. The company posted consolidated revenue of US$4.81bn, marking a 0.5% increase quarter-on-quarter but a 29.8% decrease year-on-year.
Operating profit stood at US$152m, reflecting a 24.2% rise from the previous quarter but a 57.6% drop compared to the same period last year. The operating profit margin was 3.2%.
Chang Sil Lee, CFO of LG Energy Solution, commented on the quarter's results: "EV demand slowed down and the impact of declining metal prices on average selling price (ASP) continued through this quarter.
"However, the revenue slightly increased quarter-on-quarter, thanks to increased shipments in response to new EV model launches by customers and revenue growth from ESS batteries for power grids.
"The operating profit was affected by fixed cost burden due to utilisation rate adjustment. However, the IRA tax credit effect more than doubled from the previous quarter, thanks to increased volume in North America, driving a 24.2% quarter-on-quarter increase in operating profit."
Business achievements in quarter 2
- Expansion in EV and ESS battery sectors: Despite the slowdown in global EV demand, LG Energy Solution continued to expand its product lineup and secure new supply agreements. The first large-scale (39GWh) supply agreement for LFP batteries with Renault Group's Ampere was a significant achievement. The milestone showcases LG Energy Solution's technological leadership, as it became the first company to apply cell-to-pack (CTP) technology to a pouch form factor.
- Production and distribution milestones: The company began successful mass production and shipment from its joint venture plant with Hyundai Motor Group in Indonesia, adding another EV battery production hub in Asia. The proactive move responds to the rapidly growing EV demands in the region.
- ESS battery business growth: LG Energy Solution made significant strides in its ESS battery business by securing a large-scale supply agreement for power grids in Arizona (4.8 GWh). Leveraging its expertise as a comprehensive solution provider, the company will deliver a total ESS solution, including system integration (SI) from LG Energy Solution Vertech, Inc., offering differentiated customer value.
Enhanced fundamental strengths in quarter 2
- Strengthening the supply chain: LG Energy Solution reinforced its raw material supply chain by securing lithium spodumene through offtake and investment agreements with an Australian lithium producer. The strategic move ensures a stable supply of critical materials necessary for battery production.
- Advancements in battery technology: The company made notable progress in battery-related technologies, including developing AI algorithms for cell designs optimised to customer needs. Additionally, it signed an MoU with Analog Devices, Inc. to advance cell temperature measurement technology.
Action plans to counter market slowdown
- Revised annual guidance: In response to the slower-than-expected EV market growth, LG Energy Solution revised its annual guidance. The company expects its consolidated yearly revenue to decrease by over 20% from last year. The predicted capacity eligible for the IRA tax credit has also been lowered from 45-50GWh to 30-35GWh due to adjustments in ramp-up speed in response to changing customer demands.
- Operational optimisation: LG Energy Solution will prioritise optimising operations and improving profitability to counter continued market uncertainties. The company plans to maximise the utilisation rate at each site by adjusting ramp-up speed, scaling down investment, and converting existing lines for other applications. Strategic capital expenditures will be executed based on priorities.
- Future technology development: LG Energy Solution aims to establish a differentiated product portfolio by launching 4680 cells and expanding the production of ESS LFP batteries. The company will accelerate the development of future battery technologies by setting up pilot lines for dry electrode production in its facility in Ochang, Korea.
- Cost competitiveness: The company will continue to enhance production efficiency by simplifying production processes and advancing smart factory technologies. Expanding the scope of direct sourcing from critical minerals to precursors and increasing investment in upstream suppliers will further improve cost competitiveness.
David Kim, CEO of LG Energy Solution, stated: "Despite experiencing more headwinds than previously expected, we will remain agile through transitions and establish strong fundamental competitiveness, delivering differentiated values to our customers. With these efforts, we aim to solidify our position as a front-runner leading the future of the battery industry."
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