LG Energy Solution posts record Q3 OP thanks to U.S. tax credits

[Courtesy of LGES]

LG Energy Solution Ltd. (LGES), the pure-play electric vehicle (EV) battery maker under South Korea’s LG Group, posted record operating profit in the third quarter despite a slowdown in EV demand in Europe.

Its strong performance is attributed to the gains from U.S. tax credits under the Inflation Reduction Act (IRA).

LGES announced Wednesday that it raised 731.2 billion won ($544.8 billion) in operating profit in the July-September period, up 40.1 percent on year and 58.7 percent on quarter, on sales of 8.22 trillion won, up 7.5 percent on year but down 6.3 percent on quarter.

Sales fell slightly short of the market consensus of 8.3 trillion won while operating profit exceeded the predictions of 675.1 billion won.

LGES disclosed that the operating profit included the 215.5 billion won worth of benefits from the IRA. Excluding the IRA benefits, the company still achieved an operating profit of 515.7 billion won, with a margin of 6.3 percent.

LGES has been steadily increasing its production capacity in the U.S.

In the first quarter, LGES said it received 100.3 billion won in IRA gains, but in the second quarter, the amount of benefits was only 110.9 billion won, raising concerns that the company’s production growth was slow.

However, in the third quarter, the amount of benefits increased significantly to 215.5 billion won, which suggests that local battery production nearly doubled from the first quarter.

The increase is largely attributed to the faster-than-expected rise in production, particularly due to the expansion of General Motors Co.’s EV production lines.

LGES is estimated to have produced about 4-5 GWh of battery cells in the U.S. in the third quarter, which is a capacity that can be used in around 500,000 to 600,000 electric vehicles, said an industry insider.

LGES’s third-quarter operating profit marks the largest ever recorded by a Korean battery company in a single quarter.

Thanks to the strong performance, LGES has already exceeded its annual results from the previous year, with just three quarters of the year completed.

In the first nine months of this year, LGES reported 25.74 trillion won in sales and 1.82 trillion won in operating profit. The company’s 2022 sales were 25.6 trillion won and operating profit 1.21 trillion won.

There are concerns, however, about the slower growth of the U.S. electric vehicle market and weak demand in Europe.

According to Cox Automotive, EV inventory in the U.S. has reached 97 days’ worth of supply. Falling lithium prices could also have a negative impact on future sales.

According to the London Metal Exchange (LME), the price of lithium hydroxide, primarily used by Korean battery companies, dropped by 33 percent to about $24,500 per ton on October 10 from about $36,652 per ton on August 11.