LG Energy Solution earnings weighed down by GM’s slow EV output

LG Energy Solution Ltd. and General Motors Co.’s joint venture factory Ultium Cells in Ohio, U.S. [Photo provided by Ultium Cells]

South Korea’s LG Energy Solution Ltd. announced its second-quarter preliminary results on Friday, reporting an operating profit of 611.6 billion won ($472.8 million), falling short of expectations.

One contributing factor is the underperformance of its joint venture factory with General Motors Co.(GM) for electric vehicles known as Ultium Cells.

LG Energy Solution has been actively involved in supplying batteries to major automotive manufacturers such as Tesla, Volkswagen, Hyundai Motor Group and Ford. Additionally, the company is currently pursuing joint ventures with Stellantis and Ford.

With collaborations in places with five out of the top ten original equipment manufacturers (OEMs) in the EV market, LG Energy Solution has positioned itself as a key player in the industry.

“The weak sales performance of Ultium Cells’ electric vehicle batteries in the second quarter impacted LG Energy Solution’s overall results. Furthermore, production disruptions at GM’s electric vehicle factory are believed to have played a role in the underperformance,” said Cho Cheol-hee, an analyst at Korea Investment & Securities.

While LG Energy Solution included the benefit of 110.9 billion won in the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act in its second-quarter operating profit, market analysts suggest that the company received fewer subsidies than anticipated due to the underperformance of Ultium Cells. GM, despite being an early entrant in the EV market, struggled with diversifying its model offerings, which affected overall sales performance.

Market research firm Motor Intelligence revealed that GM sold 36,322 EVs in the U.S. during the first half of this year, representing only around 10 percent of Tesla’s sales volume of 330,000 units and behind Hyundai Motor Group’s sales volume of 38,457 units. GM also failed to make it into the top ten global rankings for EV sales, excluding China.

While LG Energy Solution supplies batteries to Hyundai Motor Group, it has been noted that the company’s battery contributions are limited to models such as the Kona and Ioniq 6, rather than the popular Ioniq 5, EV6 and EV9, resulting in a constrained performance impact.

SNE Research’s data showed that global EV sales reached 2.045 million units in the first five months of this year. However, the growth rate remained at 37 percent versus a year earlier, indicating a slowdown in EV sales. The combination of a sluggish global economy and the impact of interest rate hikes in major countries has resulted in a decrease in the growth rate of EV sales.

In contrast, Samsung SDI Co., with its profit-oriented strategy, supplies batteries to BMW, which is the fifth-largest seller of EVs. Alongside companies like CATL, Samsung SDI primarily supplies batteries for high-end models such as the BMW i7. Samsung SDI is also involved in constructing a joint venture factory with GM and Stellantis and supplies batteries for Volvo commercial vehicles.

SK on Co., another major player in the EV battery industry, has established cooperative relationships with top ten brands, focusing on Hyundai Motor Group and Ford. SK on supplies batteries for Hyundai Motor Group’s key models, including the Ioniq 5, Ioniq 6, EV6, and EV9. While Ford’s F-150 Lightning pickup truck has gained popularity, it barely made it to the tenth position in terms of sales volume. SK on is currently constructing a battery production facility in the U.S. to support the annual installation of batteries in 1.2 million EVs through its collaboration with Ford.