LG Energy Solution Returns to Profit in Q2 Driven by Robust North American EV and ESS Demand
Key Insights
LG Energy Solution reported a significant operating profit of 492.2 billion won in Q2, marking its first AMPC-excluded profit in six quarters, primarily driven by strong North American demand.
The company's profitability was fueled by increased demand for high-margin EV and ESS battery products, coupled with strategic local production and ongoing cost-saving initiatives in the U.S.
LGES commenced mass production of LFP pouch cells for ESS at its Michigan plant and secured a 4 GWh supply deal with Delta Electronics, solidifying its U.S. manufacturing footprint.
Despite a sales decline due to European inventory adjustments and China production shifts, LGES is strategically adapting its operations to capitalize on U.S. market opportunities and policy incentives.
LG Energy Solution (LGES) reported a significant return to profitability in the second quarter of 2024, primarily driven by robust demand for its electric vehicle (EV) and energy storage system (ESS) battery products within the North American market. The South Korean battery giant announced on Monday an operating profit of 492.2 billion won ($360.5 million) for the April-June period, marking a substantial 152 percent increase year-over-year. This achievement is particularly noteworthy as it represents the first time in six quarters that LGES has posted a profit without including the financial benefits from the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act (IRA), with an AMPC-excluded profit of 1.4 billion won.
Despite the impressive profit surge, LGES’s sales revenue for the quarter experienced a 9.7 percent decline to 5.56 trillion won from the previous year. An industry source, speaking on condition of anonymity, attributed the profit increase to several critical factors, including escalating demand for high-margin battery products from North American clients, the commencement of local ESS production in the region, and ongoing company-wide cost-saving initiatives. The sales dip, conversely, was partly due to conservative inventory management by European automakers and a reduction in production volumes in China, a strategic adjustment aimed at minimizing exposure to U.S. tariffs on Chinese-manufactured ESS products.
Demonstrating its commitment to the U.S. market, LGES recently finalized an agreement with U.S.-based Delta Electronics to supply 4 gigawatt-hours (GWh) of battery cells for ESS applications, a capacity sufficient to power approximately 400,000 U.S. households for a day. Furthermore, the company initiated mass production of lithium iron phosphate (LFP) pouch cells at its Michigan plant last month. This milestone marks LGES as the first global battery manufacturer to commence large-scale LFP battery production for ESS within the United States, reinforcing its localized supply chain strategy.
In response to global EV industry shifts and to optimize capital expenditure, LGES suspended its previously planned ESS investment in Arizona, opting instead to leverage its existing Michigan facility. The company also acquired a third joint venture plant with General Motors in Michigan, a move designed to meet the burgeoning EV battery demand initially allocated to LG’s standalone Michigan facility. In a press release, LG Energy Solution acknowledged the increased external volatility stemming from major U.S. policy changes, which complicate market demand predictions. However, the company views the initiation of mass production for new battery chemistries targeting European EVs and the full-scale ESS production in North America as pivotal opportunities to enhance earnings in the latter half of the year.
Industry insiders suggest that recent U.S. policy adjustments, including those colloquially referred to as “One Big Beautiful Bill,” are expected to have a limited net impact on Korean battery companies like LG Energy Solution. This assessment considers that the AMPC is now slated to conclude at the end of 2031, only a year earlier than originally planned. Concurrently, the $7,500 consumer tax credit for new EV purchases under the IRA has been accelerated to this September, significantly earlier than its original end date of 2032, potentially boosting near-term EV demand.