LG Energy Solution’s Q2 earnings to fall short of market expectations: Report

[Courtesy of LG Energy Solution Ltd.]

Hi-Investment & Securities on Monday projected that LG Energy Solution’s second-quarter earnings will fall short of market expectations due to a slowdown in electric vehicle (EV) demand.

“While the gradual increase in battery cell demand from North America’s key customer GM, which has started full-scale sales of the ‘Equinox EV,’ is a positive sign, the slowdown in European EV demand has significantly lowered the operating rate of the Poland plant, continuing the burden of fixed costs,” said Chung Won-suk, an analyst at Hi-Investment & Securities in his investor report.

Chung also highlighted that Tesla, a major customer for cylindrical batteries, has seen its growth significantly slow down due to intensified market competition from Chinese EV manufacturers offering lower prices.

“Considering the reverse lagging effect (profit reduction due to the time lag in raw material input) caused by falling raw material prices, the operating loss of mid-to-large battery business, excluding the Advanced Manufacturing Production Credit (AMPC), is expected to widen,” he added.

Hi-Investment & Securities forecasts LG Energy Solution’s operating profit for the second quarter to be 176 billion won, down 62 percent from a year ago, and below the market expectation of 283 billion won.

“There is a possibility that GM may lower its annual EV production plans, and uncertainties exist regarding the outcome of the U.S. presidential election in November. Although the valuation burden within the domestic secondary battery sector is relatively low, adjustments to performance forecasts due to external factors may reduce its attractiveness,” Chung also mentioned.

Despite these challenges, Chung maintained a positive long-term outlook for LG Energy Solution, saying, “The EV market is bound to grow in the future, and LG Energy Solution, with its high level of technology and diverse customer base, is expected to show a mid-to-long-term upward trend in performance, particularly focusing on the North American market.”

He upheld a ‘Buy’ rating and a target price of 500,000 for LG Energy Solution.