LG Energy Solution Posts Second Straight Quarterly Loss, Eyes ESS Growth

LG Energy Solution (LGES) is navigating a challenging period, marked by its second consecutive quarterly operating loss. The first quarter of 2024 saw a significant operating loss of 207.8 billion won, an increase from the previous quarter's deficit. This downturn is largely influenced by external factors, particularly the reduction in subsidies under the U.S. Inflation Reduction Act (IRA), which has impacted profitability from North American operations.

The company cites a substantial drop in Advanced Manufacturing Production Tax Credits (AMPC) as a primary reason for the reduced earnings. Furthermore, the initial costs associated with stabilizing new production facilities in North America, coupled with a slowdown in demand for certain electric vehicle battery models from strategic clients, have added to the financial pressure.

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Despite the sluggish demand for electric vehicles centered in North America, we responded actively to favorable energy storage systems and cylindrical battery demand, and sales increased by 1.2% compared to the previous quarter.

Despite these headwinds, LGES remains focused on its long-term growth strategy. The company is actively expanding its order backlog for both electric vehicle (EV) batteries, particularly its next-generation 46-series cylindrical batteries, and energy storage systems (ESS). The successful securing of new orders, including an additional contract with Hanwha Solutions' U.S. subsidiary for an ESS project utilizing next-generation LFP products, demonstrates continued market confidence.

LGES is strategically increasing its focus on the ESS market, aiming to significantly boost its contribution to overall sales. The company's CFO highlighted that ESS currently accounts for the mid-20% range of total sales and expressed a strong intention to raise this proportion to over 35% by the end of the year. This pivot towards ESS, alongside the robust performance of cylindrical batteries, is seen as key to overcoming the current challenges and driving future profitability.

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In particular, energy storage systems have expanded their proportion to the mid-20% range of total sales, continuing to achieve meaningful sales growth. We plan to increase this proportion to the mid-30% range or higher by the end of the year.