Sales of KRW 9.6434 trillion, highest quarterly... Operating profit 756 billion won
North American ESS production capacity exceeds 50GWh by year-end... Focus on new orders in the second half of the year
LG Energy Solution (373220) recorded the highest ever sales and operating profit more than double market expectations in the third quarter of this year. While the expansion of energy storage system (ESS) shipments in North America and the recovery of electric vehicle battery volumes in Europe boosted performance, the company also expanded its base for sourcing raw materials needed to expand its North American business by securing long-term 240,000 tons of Canadian lithium concentrate on the same day.
Operating profit of 756 billion won... Two times higher than market expectations
According to LG Energy Solutions on the 8th, consolidated sales in the third quarter of this year amounted to KRW 9.6434 trillion, an increase of 59.0% compared to the same period last year and 27.6% compared to the previous quarter. It is the largest quarterly volume ever.
Operating profit was 756 billion won, an increase of 25.7% compared to the same period last year and 567.3% compared to the previous quarter. This is more than twice the market forecast of 326.4 billion won compiled by financial information company FnGuide.
The expected amount of Advanced Manufacturing Production Tax Credit (AMPC) under the U.S. Inflation Reduction Act (IRA) is 416.9 billion won. Excluding this, operating profit also recorded 339.1 billion won.
The performance improvement was influenced by the increase in the volume of mid-nickel batteries supplied to European electric vehicle customers and the expansion of operations at North American production facilities. In North America, the GM joint venture plant has restarted and the Hyundai Motors joint venture plant has also begun operation. The increase in operating rate due to increased ESS shipments also contributed to improving profitability.
However, operating profit excluding AMPC included compensation received from some electric vehicle customers. As the amount of compensation was not separately disclosed, it is difficult to view the entire 339.1 billion won as ordinary operating profit.
North American ESS expanded to 50GWh... Focus on new orders in the second half of the year
LG Energy Solutions plans to expand its production capacity of lithium iron phosphate (LFP) batteries for ESS in North America to more than 50GWh by the end of this year. As demand for ESS increases due to increased investment in artificial intelligence (AI) data centers and power grids, the scope of use of North American production facilities, which were focused on electric vehicles, is also expanding.
In today's report, Shinhan Investment & Securities focused on the possibility of new orders for ESS and improved profitability in the second half of the year. Of the 90GWh of this year's new order target, approximately 30GWh was secured in the first half of the year, and the remaining projects are expected to be concentrated in the second half of the year.
Lee Jin-myeong, a senior researcher at Shinhan Investment & Securities, said, “North American production capacity will expand to more than 50GWh by the end of this year, and by easing bottlenecks in packs and links, we expect a surplus in the fourth quarter even excluding AMPC.”
In terms of electric vehicle batteries, the utilization rate also improved as shipments of pouch batteries installed in mid- to low-priced electric vehicles in Europe increased. The volume of cylindrical batteries supplied to strategic customers also showed a stable flow.
Secured 240,000 tons of Canadian lithium... Expanding North American raw material procurement base
Along with the performance announcement, the expansion of the North American raw material supply chain also took shape. LG Energy Solutions announced on this day that it had signed a long-term lithium concentrate supply contract with Elevra Lithium, a North American lithium producer. A total of 240,000 tons will be supplied over four years starting from the end of this year.
Converted to lithium hydroxide, it is about 30,000 tons, which is enough to produce batteries for about 700,000 high-performance electric vehicles. Lithium concentrate is produced at the North American Lithium mine operated by Elebra Lithium in Quebec, Canada.
This contract is significant in that it secures key raw materials for a long period of time at a time when local production capacity in North America is being expanded. By diversifying raw material procurement sources concentrated in China and other countries, we can now receive a stable supply of lithium produced in North America.
Lee Kang-yeol, head of LG Energy Solutions' purchasing center (executive director), said, "This contract is to strengthen the North American raw material supply chain and respond to the rapidly growing North American battery market. We will respond more quickly to customer demand based on a stable supply and demand of lithium concentrate."
In the third quarter, the recovery of electric vehicle battery volumes in Europe and the expansion of ESS shipments in North America were simultaneously reflected in the performance. By increasing North American ESS production capacity to more than 50GWh by the end of the year, we have also secured long-term lithium from Canada and expanded the base for sourcing raw materials needed for production expansion. In the fourth quarter, whether profitability improvement continues even excluding the effect of compensation from customers and the size of new ESS orders in the second half of the year are expected to be indicators of performance trends.
