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LG Energy Solution Ltd. posted a surprise preliminary operating loss for the fourth quarter, signaling a significant slowdown in the global electric vehicle market.
Q4 Results Miss Estimates
The South Korean battery maker reported an operating loss of 122 billion won ($83.8 million) for the three months ended December 31. This figure fell short of analyst expectations for a 33.1 billion won profit, though it represented a reduction from the 225.5 billion won loss recorded a year earlier.
Revenue declined 4.8% to 6.1 trillion won. Without U.S. tax credits for advanced manufacturing, the company stated its loss would have widened considerably to 454.8 billion won.
EV Demand Woes Deepen
The global transition to electric vehicles appears to be losing momentum, a trend particularly pronounced in the United States. Policy changes, including the reduction or elimination of federal tax credits and potential weakening of fuel efficiency requirements, are contributing to this cooling demand.
This slump has ensnared major automotive players. General Motors Co. anticipates an additional $6 billion in charges linked to production cutbacks. Ford Motor Co. announced $19.5 billion in charges for an overhaul of its electric vehicle business. Ford has also canceled a 9.6 trillion won battery agreement with LG Energy Solution and is restructuring a U.S. venture with SK Innovation Co.’s battery unit, SK On.
Industry Contagion and Strategic Shift
Battery manufacturers like LG Energy Solution are facing direct fallout. Germany's Freudenberg Battery Power Systems canceled a 3.9 trillion won agreement with the company as it exits the battery sector. Furthermore, LG Energy is divesting assets from a joint battery plant with Honda Motor Co. in Ohio.
Beyond policy shifts and competition from Chinese rivals, LG Energy is still addressing the aftermath of an immigration raid at its joint plant with Hyundai Motor Co. in Georgia. The company is also contending with U.S. tariffs.
Pivot to Energy Storage
In response to the deteriorating EV outlook, LG Energy is accelerating its focus on the energy storage system (ESS) business. The company is building new production lines in Arizona and Michigan. Chief Executive Officer Kim Dong Myung indicated a strategic shift to boost ESS capacity by repurposing EV battery production facilities in North America, Europe, and China.
LG Energy aims to enhance productivity by at least 30% by 2030 through increased use of artificial intelligence in product development and manufacturing. CEO Kim emphasized the critical opportunity presented by the rapidly expanding ESS market for portfolio rebalancing and future success.
LG Energy shares saw little movement in Seoul following the announcement, having already declined approximately 20% over the preceding month due to mounting concerns about the EV market.
