LG Energy to raise capex by 50% in bet on strong EV growth

LG Energy Solution Ltd., the world’s second-largest electric vehicle battery maker, plans to ramp up capital expenditure by more than half this year as it aims to raise sales by 30% after posting record revenue in 2022, expecting EV demand growth to continue despite the slowing global economy.

LG Energy said on Friday it is set to increase spending on its global production capacity by more than 50% from 6.3 trillion won ($5.3 billion) last year. The leading South Korean EV battery maker set a goal for sales growth of 25-30% this year from 25.6 trillion won in 2022.

With the higher investment, the company plans to raise its capacity worldwide to 300 gigawatt-hours (GWh) by the end of 2023, enough for 4.3 million high-performance EVs, from 200 GWh last year. Its US output is scheduled to rise by 40 GWh with the second plant of its joint venture with General Motors Co. starting commercial operations. LG Energy is set to raise its capacity in China and South Korea by 40 GWh, as well as production in Poland by 20 GWh.

“We aim to smoothly achieve the business target by stably setting up and operating the additional capacity in 2023, as well as raising sales centered on the growth markets,” said LG Energy Chief Financial Officer Lee Chang Sil during an earnings conference call.

The company also aims to raise its operating profit margin this year to up to double the 4.74% in 2022 through sustained cost cuts with smart factories and global supply chains, Lee said.

STRONG GROWTH FORECAST

LG Energy’s investment plan came even as concerns rise over a potential global EV market slowdown amid the economic downturn.

The company expected the global battery market to expand by 33% on-year to 890 GWh in 2023, given worldwide policies to develop the EV industry with the North American EV battery market up by mid-to-high 60%.

The European and Chinese markets were forecast to rise by mid-40% and mid-20%, respectively.

“Overall demand for automobiles may decline a bit but EV demand is predicted to improve further,” a company executive said.

SUPPLY TALKS WITH TESLA

LG Energy said it is in talks with the world’s No. 1 EV maker Tesla Inc. and other EV startups on battery supplies from a plant in Arizona that the cell maker is reconsidering.

The South Korean company, which has already been supplying cylindrical batteries to Tesla in China, will provide such products to the EV manufacturer for the US market once they reach an agreement. Tesla has been buying such batteries for the world’s third-largest EV market from Japan’s Panasonic Corp.

Tesla’s recent cuts in EV prices are unlikely to hurt LG Energy’s battery prices, company officials said.

“Battery prices are decided by contracts and not affected by volatility in EV prices,” said one of the sources. “The risks from the price cuts are limited.”

RECORD EARNINGS

LG Energy said its operating profit in 2022 jumped 57.9% on-year to a record 1.2 trillion won with sales up 43.4%.

“Operating profit soared on economies of scale led by sales growth, cost cuts through improving productivity and expansion of price-competitive metal sourcing,” Lee said.

In the fourth quarter of last year, the company logged an operating profit of 237.4 billion won, up 92.3% from a year earlier as sales grew 11.6% to a quarterly record of 8.5 trillion won.

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