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 was higher than the SmartEstimate forecast of a 160 billion won loss. LGES, a supplier to companies like Tesla, General Motors, and Hyundai Motor, has been facing challenges with reduced EV battery demand, with GM even 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 company mentioned that its quarterly earnings guidance includes tax credits from the U.S. Inflation Reduction Act for its U.S.-based battery production, without which LGES would have recorded an operating loss of 398 billion won.
To counter the decline in EV battery sales, LGES is shifting its focus towards increasing demand for energy storage systems (ESS) driven by the growing electricity requirements of AI data centers. The company aims to triple its ESS revenue this year and is estimated to generate about 2.8 trillion won in ESS revenue by 2025.
Analysts also highlighted the potential benefits for South Korean battery manufacturers like LGES from the CHARGE Act, a U.S. House bill introduced to restrict imports of certain Chinese-made energy storage systems. This bill could open up new opportunities for South Korean battery companies, citing concerns over remote monitoring capabilities in Chinese-manufactured energy storage systems imported to the U.S.
LGES, the parent company of NextStar Energy in Windsor, Ontario, originally established a battery cell factory for the EV market but has now pivoted towards energy storage systems due to the sluggish EV market. The factory is adaptable and can produce batteries for both sectors going forward. NextStar Energy has received up to $16 billion in subsidies from the Canadian government and was initially a joint venture between Stellantis and LG Energy Solution.
Detailed earnings from LGES are expected to be reported on April 30.