LG Energy Solution's Profits Surge Amid Biden's Tax Credits

Strategic Insights -

LG Energy Solution, the world's third-largest electric-vehicle battery producer, reported a significant increase in its second-quarter operating profit, with a 152 per cent year-over-year growth to Won492bn ($360mn). Analysts had forecast a Won294bn profit, indicating a substantial outperformance by the company. The profit surge is largely attributed to the company's US plants producing more batteries than expected, thanks to carmakers frontloading orders in response to fears of higher tariffs on cars. This production is a direct beneficiary of the production tax credit for clean energy under the Biden administration's Inflation Reduction Act.

Key Takeaways:

  • LG Energy Solution's second-quarter operating profit more than doubled to Won492bn ($360mn) from a year earlier, exceeding analysts' forecasts by Won198bn.
  • The company's sales are estimated to have fallen 9.7 per cent to Won5.6tn, but the decline in sales was offset by higher profit margins.
  • The Biden administration's Inflation Reduction Act, including the production tax credit for clean energy, significantly benefited LGES, with the company expecting to reap benefits until 2032.
  • Some tax incentives, including the $7,500 EV purchase credit and the $4,000 used EV credit, will be scaled back under Donald Trump's budget bill, potentially hurting EV demand.
  • LGES shares rose 1.5 per cent to Won315,000, while the South Korean benchmark Kospi index edged slightly higher.
  • The company's shares have fallen more than 9 per cent this year, driven by slowing growth in EV demand, with sales growth slowing from 40 per cent in 2023 to 10 per cent last year.

Statistics:

  • LG Energy Solution's second-quarter operating profit grew 152 per cent year-over-year to Won492bn ($360mn).
  • Sales fell 9.7 per cent to Won5.6tn.
  • The company's shares rose 1.5 per cent to Won315,000.
  • LGES shares have fallen more than 9 per cent this year.
  • Global EV battery usage excluding China rose by 26 per cent in the first five months of this year compared with 25 per cent during the same period last year (SNE Research).
  • LGES battery usage increased by 13 per cent, while CATL battery usage grew by 36 per cent (SNE Research).

Sources:

  • LSEG estimate
  • SNE Research
  • LG Energy Solution spokesperson
  • International Energy Agency