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 is higher than the LSEG SmartEstimate forecast of a 160 billion won loss. LGES, a key supplier to brands like Tesla, General Motors, and Hyundai Motor, has been facing challenges with declining EV battery demand. General Motors even temporarily halted operations at a Detroit EV plant until April.
The company anticipates a 2.5% decrease in revenue, dropping to 6.6 trillion won compared to the previous year. LGES stated that their quarterly earnings guidance factors in tax credits received under the U.S. Inflation Reduction Act for their U.S.-based battery production. Excluding these credits, LGES would have reported an operating loss of 398 billion won.
To counterbalance the decline in EV battery demand, LGES is prioritizing the expansion of energy storage systems (ESS) to meet the growing need for electricity in AI data centers. In a strategic move, LGES aims to triple its ESS revenue this year and is projected to reach approximately 2.8 trillion won in ESS revenue by 2025 according to Nomura estimates.
Furthermore, industry analysts suggest that the recently introduced U.S. CHARGE Act, aimed at restricting the import of specific Chinese-made energy storage systems, may present opportunities for South Korean battery manufacturers. The bill raises concerns about potential risks associated with energy storage systems from China, including remote monitoring capabilities.
LGES, the parent company of NextStar Energy in Windsor, Ont., initially focused on producing battery cells for electric vehicles but has shifted its attention to energy storage systems due to the declining EV market. The facility in Windsor is now equipped to manufacture batteries for both sectors. The Canadian government has committed up to $16 billion in subsidies to NextStar, which was originally established as a joint venture between Stellantis and LG Energy Solution.
A detailed earnings report from LGES is scheduled to be released on April 30.