Weak demand impacts LG’s earnings as GM’s battery partner

LG Energy Solution Misses Q4 Earnings Estimates

Introduction

Battery maker LG Energy Solution Ltd. has reported disappointing fourth-quarter earnings due to a decline in demand for electric vehicles and lower lithium prices. Despite this, the company remains optimistic about its future prospects.

Q4 Earnings Report

According to LG Energy Solution’s filing on Tuesday, the operating profit for the three months ended December 31, increased by 42% compared to the previous year, reaching 338.2 billion won ($258 million). However, this figure fell short of analysts’ median estimate of 607.7 billion won.

Additionally, the company’s revenue declined by 6.3% to 8 trillion won, below the estimated 8.5 trillion won.

Impact of US Tax Credit

LG Energy’s earnings included a tax credit of approximately $191 million resulting from President Joe Biden’s Inflation Reduction Act. This legislation provides domestic battery manufacturers with a tax credit of $35 per kilowatt-hour for battery cells. It’s worth noting that the company’s operating profit, excluding the US tax credit, was significantly lower at 88.1 billion won.

Challenges in the Electric Vehicle Market

During the fourth quarter, the prices of Chinese lithium hydroxide, a crucial material for EV batteries, experienced an 82% decline, indicating weaker-than-expected demand for battery-powered vehicles. Battery makers, faced with sluggish sales, likely reduced the prices of their batteries in contracts with customers, according to NH Investment & Securities Co.

Furthermore, General Motors Co., one of LG Energy’s major customers, fell short of its EV production goal in 2023. The automaker sold 75,000 EVs, significantly below its target of producing 150,000 units. Although GM has faced challenges with automation in battery cell production from its joint venture with LG, it anticipates resolving these issues in the first half of this year.

Transition to Iron-Based Batteries

LG Energy’s sales may continue to decline in 2024 as both GM and Ford Motor Co., who rely on LG’s nickel-based batteries, have expressed their intention to switch to iron-based batteries. This shift is outlined in a note from Yuanta Securities Korea Co. While these lithium-iron-phosphate batteries are generally considered safer and cheaper than lithium cells, they do offer shorter driving ranges.

Future Prospects

In 2023, LG Energy Solution generated sales of approximately 34 trillion won and achieved an operating profit of 2.1 trillion won. Under the leadership of newly appointed CEO Kim Dong-Myung, the company expects its jointly operated battery plant with Hyundai Motor Co. in Indonesia to contribute positively to revenue in the upcoming year.

(Updates with further detail in final paragraphs.)

Read More of this Story at finance.yahoo.com – 2024-01-09 02:42:00