LG Energy Solution, a South Korean battery manufacturer and parent company of NextStar, has projected an operating loss of 208 billion won (equivalent to about $192 million CDN) for the first quarter due to diminished demand from electric vehicle (EV) producers. This estimation contrasts with the LSEG SmartEstimate forecast of a 160 billion won loss, which favored consistently accurate analysts.
The company, which supplies batteries to Tesla, General Motors, and Hyundai Motor, is facing challenges with declining demand for EV batteries, exacerbated by GM’s decision to temporarily halt operations at a Detroit EV plant until April.
LG Energy Solution anticipates a 2.5% decrease in revenue to 6.6 trillion won compared to the previous year. The quarterly earnings outlook encompasses tax credits received under the U.S. Inflation Reduction Act for the company’s U.S.-based battery production. Excluding these credits, LG Energy Solution would have recorded an operating loss of 398 billion won.
To counterbalance the weakness in EV batteries, LG Energy Solution is concentrating on expanding the demand for energy storage systems (ESS) driven by the increasing electricity requirements of AI data centers. The company aims to triple its ESS revenue this year compared to the previous year and is estimated to achieve around 2.8 trillion won in ESS revenue by 2025.
Analysts suggest that the introduction of the CHARGE Act by the U.S. House, aimed at prohibiting the import of specific Chinese-made energy storage systems, could present opportunities for South Korean battery manufacturers. The bill raises concerns about potential remote monitoring capabilities in energy storage systems manufactured in China and imported to the U.S.
LG Energy Solution, the parent company of NextStar Energy in Windsor, Ontario, originally established the massive battery cell factory to cater to the electric vehicle battery market. However, due to the downturn in the EV sector, the company has shifted its focus to energy storage systems. The plant is now adaptable to produce batteries for both sectors going forward.
Both the provincial and federal governments have committed up to $16 billion in subsidies to NextStar, which was initially a joint venture between automaker Stellantis and LG Energy Solution. LG Energy Solution is scheduled to release detailed earnings on April 30.
