LG Energy Solution 'surpassed expectations', proved competitive, but is there a risk?

[Korea Financial Times, Gwak Horyung] LG Energy Solution posted an operating profit of KRW 448.3 billion in the 3rd quarter of this year. This is the fourth quarter since the third quarter of last year that the company has posted a profit of over KRW 400 billion, exceeding market expectations. However, excluding the benefit of the US tax credit, the company is still in the red.

LG Energy Solution announced on the 8th that its sales for the 3rd quarter of 2024 were preliminarily calculated at KRW 6.88 trillion and operating profit at KRW 448.3 billion. Compared to the 3rd quarter of 2023, sales were down 16.3% and operating profit was down 38.7%.

The 3rd quarter of last year was just before the aftermath of the 'Electric Car Chasm' hit in earnest. This quarter's results are considered a relative success. It beat market expectations by 2% in revenue and 6.7% in operating profit. The stock price jumped 4% after the preliminary results were released.

There was also some positive news. The company announced on the 8th that it had signed a battery supply agreement with a Mercedes-Benz affiliate, focusing on North America. According to industry sources, it is a large-scale contract to supply 50.5 GWh of its next-generation cylindrical battery, '46Pi', for 10 years. LG Energy Solution said, “We cannot confirm any further details due to confidentiality agreements with our customers.”

Mercedes-Benz is a representative company that has preferred Chinese batteries such as CATL. In Korea, the company has been embroiled in controversy for installing cheaper Parasys batteries in its cars after a fire in a parking lot in Incheon.

In the first half of the year, LG Energy Solution won a trillion-scale ESS project in the U.S. ESS market. The U.S. ESS market is already dominated by Chinese companies with competitive prices. It is significant that LG Energy Solution is seeing a counterproductive effect as developed countries such as the U.S. and Europe are building tariff barriers against Chinese products.


Of course, there are also worries. The company's 3rd-quarter results reflected KRW 466 billion in subsidies under the Advanced Manufacturing Production Credit (AMPC) of the U.S. IRA (Inflation Reduction Act). Excluding this, the profit from actual operating activities was a negative KRW 17.7 billion. While this is down from the 2nd quarter of this year (a loss of KRW 252.5 billion), it is the third consecutive quarter of substantial losses.

There are concerns about the sustainability of the IRA subsidies that are supporting current performance. The core goal of the IRA is to attract investment and create jobs in the U.S. in the green energy sector. The question is, how long will this continue to be a situation where Korean companies benefit from legislation that is in the interest of the US. There is also the US presidential election next month. "We cannot let our guard down even if Kamala Harris is elected, not to mention Donald Trump, who denies climate change," said a battery industry insider, adding, ”It is uneasy to depend on a single policy for company performance.”

LG Energy Solution President Kim Dong-myung indirectly expressed this concern when he declared at the vision declaration ceremony the previous day that the company would be recognized for its corporate value by creating a stable EBITDA profitability of mid-10% excluding IRA within five years. Mr. Kim said he aims to expand the company's portfolio, which is skewed toward lithium-ion batteries for electric vehicles, to include dry process LFP, battery solutions, and ESS.

Gwak Horyung (horr@fntimes.com)