South Korean battery manufacturer LG Energy Solution (LGES) announced on Friday its intention to reduce capital expenditure by up to 30% this year due to a slowdown in demand growth for electric vehicles, following its first quarterly loss in three years. The company, a supplier to Tesla, General Motors, and Volkswagen, reported an operating loss of 226 billion won ($158 million) for the October-December period, contrasting with a profit of 338 billion won for the same period last year.
LGES voiced concerns about the potential impact of the newly inaugurated U.S. President's proposal to eliminate the $7,500 tax credits on EV purchases, foreseeing downward pressure on the U.S. market. The company believes that while short-term electrification may slow, the overall direction of the battery industry remains unchanged. LG Energy Solution CFO Lee Chang-sil emphasized during a conference call that there would be no major change in the future direction of the battery industry.
The decline in fourth-quarter earnings was attributed to decreased demand from General Motors, a major partner in North America. However, LGES foresees a demand recovery from General Motors in the second quarter with the launch of new models. The company aims to increase revenue by 5%-10% this year as it commences operations at joint battery facilities with Stellantis and Honda in North America.
To enhance efficiency, LGES plans to maximize the use of existing production facilities instead of constructing new plants in North America. CEO Kim Dong-myung predicted in a recent message that the EV market will rebound post-2026, highlighting challenges posed by the global expansion of Chinese competitors.
Quarterly revenue decreased by 19% year-on-year to 6.45 trillion won. Following the announcement, LGES shares remained steady, contrasting with a 0.9% uptick in the benchmark KOSPI index. ($1 = 1,430.2000 won)