LG Energy Q1 profit beats forecast on strong demand, price hikes

LG Energy Solution Ltd., the world’s second-largest electric vehicle battery maker, reported a lower-than-expected decline in quarterly profit as the South Korean company raised product prices on strong demand.

LG Energy said on Thursday its preliminary operating profit fell 24.1% to 258.9 billion won ($212.1 million) in the first quarter from a year earlier although sales rose 2.1% to 4.3 trillion won.

The company had been forecast to report an operating profit of 163.9 billion won for the January-March period, according to market tracker FnGuide Inc.

Analysts had expected LG Energy to suffer from production disruptions of global carmakers due to the ongoing automotive chip shortage, as well as the supply chain interruption, surging commodity prices and rising logistics costs amid the war in Ukraine.

The battery maker, however, reduced the impact of those negative factors, especially a jump in costs for key raw materials such as nickel and lithium, by raising product prices when they sold batteries to customers, analysts said.

Demand for its cylindrical batteries also grew among automakers such as Tesla Inc., while LG Energy improved production yields through automation.

BETTER OUTLOOK

The business condition outlook has improved, analysts said.

“Its market dominance is expected to increase as disruption in EV production due to the chip shortage will be gradually resolved,” said Noh Woo-ho, an analyst at Meritz Securities. “There is no reason to undervalue LG Energy compared with CATL as the profitability gap with Chinese battery players is decreasing,” said Noh, referring to the world’s top battery maker Contemporary Amperex Technology Co. Ltd. in China.

LG Energy plans to secure battery production capacity of more than 200 gigawatt hours (GWh) alone in North America after 2025. That would account for 70% of the 285.8 GWh demand in 2025 forecast by market researcher IHS Markit.

The company is also scheduled to produce the 4680 battery cell, Tesla’s next-generation battery, in the second half of 2023, which is expected to raise its market share, industry sources predicted.

Write to Hyung-Kyu Kim at khk@hankyung.com
Jongwoo Cheon edited this article.