LG Energy Solution (KRX: 373220) today announced its 2023 full-year earnings, posting steady increase in both annual consolidated revenue and operating profit.
For the full-year, LG Energy Solution reported KRW 33.7 trillion in consolidated revenue and KRW 2.2 trillion in operating profit, marking an on-year increase of 31.8 percent and 78.2 percent respectively.
“We have achieved high annual revenue growth of more than 30 percent for two consecutive years by actively responding to strong market demand in North America,” said Chang Sil Lee, CFO of LG Energy Solution. “We also successfully generated 78 percent on-year increase in annual operating profit by improving profitability through cost reduction and yield / productivity improvement, on top of the IRA tax credit recognition.”
As is evident from these financial performances, last year marked the company’s full-fledged operation in North America. “We gained speed with the successful ramp-up of GM JV (Ultium Cells) plant in Ohio, as well as investments in our stand-alone Arizona production facility for cylindrical and energy storage systems (ESS) batteries,” explained Lee. “With the second joint venture with Hyundai Motors and the supply agreement with Toyota, we have also diversified our customer portfolio.”
Lee added, “Last year, we have also established sound supply chain by expanding sourcing of IRA-compliant critical minerals from the U.S. FTA countries and reinforcing strategic cooperation for recycling business with partners by region.
As for 4Q 2023 financial results, LG Energy Solution reported approximately KRW 8 trillion in consolidated revenue, a 2.7 percent decrease on-quarter and 6.3 percent decrease on-year. Quarterly operating profit marked KRW 338.2 billion, a 53.7 percent decrease on-quarter and 42.5 percent increase on-year. The figure includes the estimated IRA tax credit amount of KRW 250.1 billion, which has increased by 16 percent from the previous quarter, thanks to stable operation of the company’s U.S. production facilities. The operating profit excluding the estimated IRA tax credit would be KRW 88.1 billion.
■ Demand recovery momentum amid market volatilities
As temporary slowdown of global EV market growth is expected in 2024, LG Energy Solution predicts the global EV market would grow by mid-20 percent range this year, affected by several factors, including the North American market growth forecasted to stand at low to mid 30 percent range.
While much volatilities and uncertainties are expected in market demand, LG Energy Solution believes demand recovery momentum still exists. Though consumer demand and battery prices are expected to decline, automakers’ aggressive EV price cuts and strong willingness to launch mid- to low-end EV models is likely to have positive impact in improving consumer demand for EVs. In addition, prolonged decline in metal prices is expected to lower automakers’ burden on battery costs and consequently trigger increase in battery demands for re-stocking.
LG Energy Solution also predicts it would be able to maximize its first-mover advantage in North America, where the company has eight production facilities currently operating or under construction, making a chance for further differentiation based on its technology leadership.
In the midst of political uncertainties and external variables, LG Energy Solution views the global trend toward carbon neutrality and electrification will persist. Also, the regional policies to uphold supply chain localization, such as the IRA and CRMA, are expected to play favorably for the company, as it has already secured domestic battery production and value chains.
■ Key Business Initiatives to Secure Unmatched Competitive Superiority
To capitalize on these opportunities and secure solid competitive superiority, LG Energy Solution announced its key business initiatives to concentrate on achieving qualitative growth by focusing on its fundamental strengths such as technology leadership, cost competitiveness and future readiness.
First, the company aims to secure unmatched technology leadership across all segments. In the premium EV segment, it will further improve the quality of high-nickel (Hi-Ni) NCMA batteries, and in the mainstream EV segment, expedite the technology development for high-voltage mid-nickel NCM and LFP batteries. For the mobility & IT batteries, LG Energy Solution will aim for market leadership through successful mass production of 46-Series in the second half of this year. For the ESS segment, LFP battery business, which began production late last year, and the ESS system integration solution will be expanded.
Second, the company will establish structural cost competitiveness that remains resilient to the external volatilities by increasing the scope of direct sourcing, changing major raw materials through technology development, and increasing direct investment in value chains. It will also cut down fixed costs by improving productivity and quality with smart factory technology adoption, and reduce overhead costs including logistics and utility expenses.
Lastly, the company will accelerate its efforts for future readiness aimed at achieving sustainable growth. It will concentrate on the development of next-generation batteries, including its plan to produce lithium-sulfur batteries by 2027. The company also plans to expedite the development of dry electrodes, which bear strengths in energy density and cost competitiveness, and start manufacturing products with the new stacking process.
LG Energy Solution also announced this year’s guidance of mid-single digit percent year-on-year increase in the annual consolidated revenue.
While this year’s capex is to be at a similar level to the previous year, the company aims to seamlessly prepare for the expansion of its North American production facilities that are considered its future growth engine, including the GM JV (Ultium Cells) facility in Tennessee, Stellantis JV (NextStar Energy), and Honda JV. At the same time, the company plans to execute its investments into new production plants in a flexible and efficient manner.
In addition, the estimated capacity eligible for the IRA tax credits this year would be around 45~50GWh, more than double the previous year.
“This year will mark the start of ‘LG Energy Solution 2.0 era’, reinforcing our fundamental competitiveness including technology leadership and realizing differentiated customer values,” said David Kim, CEO of LG Energy Solution. “By concentrating on qualitative growth, we will secure a concrete business structure and a strong foothold for sustainable growth.”
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