LG Energy Solution swings to profit in Q2 as sales top W7tr for first time in 10 quarters

Sales reach 7.56 trillion won, operating profit 113.3 billion won

First time above 7 trillion won ex-AMPC since Q4 2023

ESS orders, Tesla sales recovery fuel second-half optimism

LG Energy Solution's grid-scale energy storage system product [LG Energy Solution]

LG Energy Solution surpassed 7 trillion won ($4.57 billion) in quarterly sales for the first time in 10 quarters Tuesday, signaling a second-half earnings recovery. The company has continued to secure large-scale orders in its energy storage system (ESS) business, while expanded supply of mid-to-low-cost batteries for the European market and growing cylindrical battery shipments drove the rebound in its electric vehicle segment.

LG Energy Solution disclosed preliminary second-quarter results Tuesday showing consolidated sales of 7.56 trillion won and operating profit of 113.3 billion won. Sales rose 24.8 percent year-on-year, while operating profit fell 77.0 percent from the same period last year. Compared with the previous quarter, however, sales climbed 15.3 percent and operating profit swung back to positive territory.

Excluding an estimated 241 billion won in Advanced Manufacturing Production Credits (AMPC) under the US Inflation Reduction Act, sales came to 7.32 trillion won and the operating loss stood at 127.7 billion won. The AMPC is a tax credit system that reimburses manufacturers of advanced products — including batteries, solar panels, wind turbines and critical minerals — based on output metrics such as kilowatt-hours, watts and tons when those products are made and sold in the United States.

It marks the first time in 10 quarters — since the fourth quarter of 2023 — that quarterly sales have exceeded 7 trillion won on an ex-AMPC basis. LG Energy Solution had previously topped 8 trillion won in quarterly sales in 2023, riding growth in the North American electric vehicle market, but was hit by weakening EV demand after President Donald Trump cut EV subsidies following his inauguration.

LG Energy Solution's factory in Holland, Michigan [LG Energy Solution]

The second-quarter sales recovery was driven by broader shipments of mid-to-low-cost EV batteries for the European market, steady demand for cylindrical batteries and higher North American ESS volumes. Consistent growth in European mid-to-low-cost product shipments, combined with stable demand from Tesla for cylindrical cells, expanded output of the 46-series battery. ESS shipments also rose as North American production facilities gradually increased their capacity.

Operating profit declined year-on-year due to sluggish EV demand in North America and temporary shutdowns at some joint-venture factories. However, upfront cost burdens from the expansion of North American ESS shipments eased, and stronger sales of cylindrical batteries and European mid-to-low-cost EV pouch products pushed operating profit back into positive territory quarter-on-quarter.

The battery industry expects the earnings improvement to become more pronounced in the second half of this year. On the ESS side, the launch of new North American production lines is expected to expand volumes. LG Energy Solution has continued to land large-scale contracts, including a 6-gigawatt-hour ESS battery supply agreement with US integrated energy company DTE.

In the EV segment, demand for mid-to-low-cost batteries — including high-voltage mid-nickel and lithium iron phosphate (LFP) chemistries — is expected to grow consistently. Rising cylindrical battery demand as strategic customer Tesla recovers its global sales is an additional positive factor.

At its first-quarter earnings announcement, LG Energy Solution said it would "stabilize operations at ESS production facilities to achieve meaningful quarterly sales growth" and added that it believed "the annual sales growth target of 15 to 20 percent set at the start of the year remains achievable through expanded supply of relatively resilient European mid-to-low-cost products and higher sales to cylindrical battery strategic customers in the EV business."

Kim Dong-myung, president and CEO of LG Energy Solution [LG Energy Solution]

Securities analysts also see the second-half improvement trajectory as intact. Lee Jin-myung, an analyst at Shinhan Investment, said ESS revenue in the second half is expected to rise 46 percent over the first half amid continued large-scale orders. "In the EV business, despite low utilization rates at US factories, quarterly earnings continue to improve thanks to expanded mid-nickel and LFP volumes for Europe and strong cylindrical battery shipments," Lee said.

Ju Min-woo, an analyst at NH Investment, said some customers are beginning to rebuild battery inventories in the second half, with a growing consensus that the sector has passed its trough. "The ESS business is expected to swing to profit in the second half alongside some 90 gigawatt-hours in new orders," Ju said. He added that Tesla's Full Self-Driving (FSD) system has received regulatory approval in five European countries and that the number of approved markets is expected to expand in the second half, making Tesla a key driver of LG Energy Solution's second-half earnings recovery.

eyre@heraldcorp.com