South Korean battery manufacturer LG Energy Solution (LGES) announced a projected first-quarter operating loss of 208 billion won (approximately $192 million CDN) due to decreased demand from electric vehicle (EV) manufacturers, impacting its profitability compared to a forecasted loss of 160 billion won. LGES, a supplier to Tesla, General Motors, and Hyundai Motor, is facing challenges with diminishing EV battery demand, especially with General Motors temporarily halting operations at a Detroit EV plant until April.
LGES anticipates a potential 2.5% decline in revenue to 6.6 trillion won compared to the previous year. The company attributed part of its quarterly earnings projections to tax credits received under the U.S. Inflation Reduction Act for its U.S.-based battery production. Excluding these credits, LGES would have recorded an operating loss of 398 billion won.
To counter the decline in EV battery demand, LGES is shifting focus towards meeting the rising demand for energy storage systems (ESS), particularly driven by the increasing electricity requirements for AI data centers. LGES aims to triple its ESS revenue this year, with projections estimating ESS revenue to reach about 2.8 trillion won by 2025.
Analysts suggest that the introduction of the CHARGE Act in the U.S., aimed at restricting imports of certain Chinese-made energy storage systems, could present new opportunities for South Korean battery manufacturers like LGES. The bill raises concerns about potential security risks associated with energy storage systems manufactured in China.
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 sluggish EV market, the company has redirected its focus towards energy storage systems production. The factory is now adaptable to produce batteries for both sectors going forward.
The Canadian government has pledged up to $16 billion in subsidies to NextStar Energy, which was originally formed as a joint venture between automaker Stellantis and LG Energy Solution. LGES is scheduled to release detailed earnings reports on April 30.