LG Energy Solution posts record quarterly sales, earnings beat in Q3

Quarterly sales top 9 trillion won for first time; operating profit hits record

Company turns profit even after stripping out US subsidies

North America ESS expansion, joint venture startups drive growth

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

LG Energy Solution posted record quarterly sales in the third quarter, with operating profit also surpassing its previous all-time high.

The company said Thursday it recorded consolidated third-quarter sales of 9.64 trillion won ($7.18 billion) and operating profit of 756 billion won in a preliminary disclosure. Sales rose 59.0 percent from a year earlier, while operating profit climbed 25.7 percent. Compared with the previous quarter, sales jumped 27.6 percent and operating profit surged 567.3 percent.

It marked the first time quarterly sales have exceeded 9 trillion won. The previous quarterly sales record was 8.77 trillion won, set in the second quarter of 2023. Operating profit also topped the prior quarterly record of 731.2 billion won, set in the third quarter of 2023.

The results far exceeded market expectations. FnGuide, a financial data provider, had projected third-quarter operating profit of 326.4 billion won — less than half of what the company actually delivered.

The results included 416.9 billion won in Advanced Manufacturing Production Credits under the US Inflation Reduction Act. Excluding that subsidy, sales came to 9.23 trillion won and operating profit stood at 339.1 billion won. In the second quarter, stripping out 241 billion won in AMPC had left the company with an operating loss of 127.7 billion won — this time, it turned a profit even without the subsidy.

LG Energy Solution's grid-scale ESS battery container product [LG Energy Solution]

Growth in sales was driven by both the electric vehicle battery and ESS businesses. Mid-nickel battery shipments to Europe continued to expand, while the restart of a joint venture with General Motors in North America and the launch of operations at a joint venture with Hyundai Motor also contributed. Cylindrical battery shipments to key customers remained steady, and North American ESS production capacity expanded.

Operating profit improved as higher ESS shipments in North America reduced the fixed-cost burden. Increased shipments of pouch batteries for mid- to low-end electric vehicles in Europe also lifted factory utilization rates. Compensation received from some EV customers added to the profit gain as well.

Industry watchers expect the growth momentum to continue in the second half as North American ESS production ramps up in earnest and EV-related volumes improve. Stabilization costs across production systems — including ESS — are expected to weigh on results for now, but steady volume growth should ease the fixed-cost burden and gradually improve profitability.

At its second-quarter earnings call in July, LG Energy Solution said it expected ESS production at its North American facilities to roughly double in the second half compared with the first half, citing the expansion of operations there. The company added that stable volume growth in automotive pouch and cylindrical batteries meant it was on track to achieve the more-than-20-percent annual sales growth it had targeted at the start of the year.

Overview of LG Energy Solution's North American ESS production facilities [LG Energy Solution]

Securities analysts also forecast continued growth, underpinned by a solid order pipeline. With investment in power grids and AI data centers continuing to rise, LG Energy Solution is well-positioned to respond quickly to demand, having already built up North American ESS production capacity and systems integration capabilities.

Park Jin-su, an analyst at Shinyoung Securities, said the company's rapid expansion of North American ESS production capacity, combined with AMPC-driven profit growth, was expected to lift overall earnings. He also noted that high-voltage mid-nickel and lithium iron phosphate batteries for Volkswagen and Renault — supply of which began late last year — were continuing to drive utilization rates at the company's Polish factory.

Lee Jin-myeong, an analyst at Shinhan Securities, said the company had secured about 30 gigawatt-hours of its 90 GWh new-order target in the first half, with the remaining projects expected to be concentrated in the second half. He added that North American production capacity was on track to exceed 50 GWh by year-end, and that as battery bottlenecks eased, the company was likely to post a profit in the fourth quarter as well, even excluding the AMPC benefit.

eyre@heraldcorp.com