LG Energy Solution stocks closed at 313,500 won on July 9, declining 0.63% and approaching its IPO price of 300,000 won from January 27, 2022. The company reported Q2 operating profit of 113.3 billion won on July 7, returning to profitability after three quarters of losses but missing analyst consensus of 188.3 billion won by 39.83%. The earnings shortfall stemmed from bottlenecks in ESS complete product assembly processes and reduced shipment volumes alongside lower subsidy benefits. Securities analysts attributed the miss to delayed recognition of compensation from automakers breaching battery supply contracts and packaging process constraints in the energy storage system division.
LG Energy Solution Reports Q2 Operating Profit Below Consensus
LG Energy Solution's stock declined 9% from July 7 through July 9 following the Q2 earnings announcement. The stock had dropped during June when investor sentiment shifted toward semiconductor stocks, then attempted a rebound in late June ahead of the earnings release. Intraday trading on July 9 saw the stock fall to 309,500 won, levels reminiscent of May-June last year when shares traded below the IPO price for approximately one and a half months.
ESS Division Faces Assembly Bottlenecks and Reduced AMPC Benefits
Jin-myeong Lee, researcher at Shinhan Investment & Securities, stated that ESS continued external growth through new North American factory operations, but shipments fell short of expectations due to bottlenecks in pack assembly and system integration processes. The shipment disruptions resulted in lower-than-expected Advanced Manufacturing Production Credit (AMPC) benefits and sustained fixed cost burdens from ESS production facilities, delaying profitability improvements.
Seong-hyun Hwang, researcher at Eugene Investment & Securities, estimated that LG Energy Solution's ESS division will struggle to achieve profitability in Q3 excluding AMPC benefits due to ongoing ramp-up costs from initial production facility operations and continued pack assembly bottlenecks. Hwang projected the division's profitability turnaround to occur in Q4.
Hyun-soo Kim, researcher at Hana Securities, stated that mid-to-long-term ESS demand will be supported by expanded combinations of renewable energy and ESS, plus investments to address rising power demand centered on AI data centers.
Tesla Small Battery Sales and GM Joint Venture Restart Expected
Ji-woong Yoo, researcher at Daol Investment & Securities, noted that LG Energy Solution's small battery division currently maintains the highest margin rate among major divisions. The division benefited significantly from the main customer's sales recovery in China and European automotive factory capacity expansion.
For medium and large batteries, the restart of the Ultium Cells joint venture factory with GM is expected to serve as a catalyst for profitability recovery. GM had maintained low utilization rates at Ultium Cells factories due to weak EV sales. Hyun-soo Kim projected that GM's battery inventory will be substantially depleted after Q3, with Ultium Cells operations resuming in Q4.
Hoe-soo Ahn, researcher at DB Securities, stated that LG Energy Solution's Poland factory utilization rate could improve 10-15 percentage points in the second half, supplying lithium iron phosphate (LFP) batteries to Renault for budget models and reduced-nickel batteries to Volkswagen.
FAQ
What was LG Energy Solution's Q2 operating profit?
LG Energy Solution reported Q2 operating profit of 113.3 billion won on July 7, marking a return to profitability after three quarters but missing analyst consensus of 188.3 billion won by 39.83%.
Why did LG Energy Solution's ESS division underperform in Q2?
The ESS division experienced bottlenecks in pack assembly and system integration processes that reduced shipment volumes below expectations, resulting in lower AMPC subsidy benefits and sustained fixed cost burdens from production facilities.
When is the GM Ultium Cells joint venture expected to restart operations?
Analysts project that GM's battery inventory will be substantially depleted after Q3, with Ultium Cells factory operations resuming in Q4 as GM's EV sales recover.
