South Korea's battery trio eyes earnings rebound on ESS boom, automaker compensation

LG Energy Solution posts record quarterly sales, operating profit

Samsung SDI seen returning to black; SK On eyes ESS revenue from year-end

Samsung SDI's Giheung campus. [Samsung SDI]

South Korea's three major battery makers are growing more confident about a profitability recovery, buoyed by strong demand for energy storage systems and compensation payments from automakers who fell short of contracted purchase volumes. LG Energy Solution set all-time quarterly records for both sales and operating profit in the third quarter, and Samsung SDI is now expected to beat market estimates as well.

According to FnGuide, the market consensus for Samsung SDI's third-quarter results stands at 4.04 trillion won ($3.02 billion) in sales and 165.4 billion won in operating profit. Sales would represent a 32.3 percent increase from the same period last year, while operating profit would mark a return to the black after a 591.3 billion won operating loss in the third quarter of last year.

Samsung SDI: ESS growth plus GM joint-venture settlement gain

The earnings improvement is expected to be driven largely by ESS. Analysts project Samsung SDI's ESS sales to rise more than 30 percent quarter-on-quarter in the third quarter, with US volumes set to add meaningfully from the fourth quarter onward. Samsung SDI has converted part of the electric vehicle battery line at its joint-venture factory with Stellantis in Indiana into a lithium iron phosphate battery line for ESS use, with mass production beginning this month.

A one-time gain will also contribute. A settlement profit of around 150 billion won arising from the acquisition of a stake in Samsung SDI's General Motors joint venture is expected to be reflected in third-quarter results — compensation for the automaker's failure to meet minimum purchase commitments. Factoring in that gain, DS Investment & Securities, NH Investment & Securities and Daishin Securities all forecast operating profit exceeding 250 billion won, above the consensus estimate.

Samsung SDI's SBB 2.0 energy storage system equipped with LFP batteries. [Samsung SDI]

LG Energy Solution, which released preliminary results earlier, posted third-quarter sales of 9.64 trillion won and operating profit of 756 billion won — both all-time highs on a quarterly basis. Operating profit was more than double the market consensus of 326.4 billion won.

The results include 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 to 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, so posting a subsidy-free profit this quarter marks a meaningful turnaround.

A key driver was the resolution of a production bottleneck in North American ESS operations. Analysts estimate LG Energy Solution's ESS sales grew more than 50 percent quarter-on-quarter in the third quarter, with ESS line utilization reaching around 90 percent. The bottleneck had stemmed from a mismatch between rapidly expanded battery cell capacity and slower assembly processes for finished ESS units, which had delayed deliveries. Analysts expect the issue to be fully resolved from the fourth quarter.

Compensation payments from automakers were also a positive factor. With weak electric vehicle demand in North America causing automakers to fall short of contracted battery purchase volumes, LG Energy Solution is estimated to have received compensation in the 300 billion won range. That income is believed to have pushed the EV battery division back into the black as well.

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

SK On pauses after surprise Q2 profit; China curbs seen as tailwind

SK On is expected to take a breather in the third quarter after posting its best results since spinning off as an independent company in the second quarter. SK On recorded second-quarter sales of 2.95 trillion won and operating profit of 821.8 billion won, driven by higher battery sales in Asia, cost reductions, increased AMPC and one-time gains including customer compensation. Analysts expect the company to swing back to a loss in the third quarter as those one-time items fall away.

Still, there is optimism that profitability will improve as ESS orders begin flowing into revenue from year-end. SK On signed a 1 GWh ESS supply agreement with US renewable energy developer Flatiron Energy Development in September last year; including preferential negotiation rights, the supply volume could reach up to 7.2 GWh.

In August, SK On signed a 9 GWh supply contract with US ESS company Neovolta Power, covering five years of LFP battery deliveries starting in 2027. Industry estimates put the contract value at around 1.5 trillion won ($1.12 billion).

SK On's SK Battery America factory in Georgia. [SK On]

SK On has also moved to secure its materials supply chain. This month, the company signed a 1 trillion won-range LFP cathode supply agreement with Posco Future M. The LFP cathode materials Posco Future M produces domestically will go into ESS battery manufacturing at SK On's factory in Georgia.

Meanwhile, Europe's push to curb Chinese competition is seen as another tailwind for South Korean battery makers. The EU is advancing legislation under its Industrial Acceleration Act that would include local production requirements, and has agreed to cap exports of Chinese hybrid and plug-in hybrid vehicles to the region.

All three South Korean battery makers already have production bases in Europe. According to IBK Investment & Securities, the three Korean companies account for about 174 GWh of battery production capacity currently operating in Europe, far ahead of the roughly 24 GWh held by Chinese manufacturers.

"Following the expansion of the US ESS market, a turnaround in US EV market growth and a recovery of market share in the European EV market, 2027 will be the year Korean battery makers enter a second golden age," said Han Byung-hwa, an analyst at Eugene Investment & Securities.

eyre@heraldcorp.com