Tesla supplier LG Energy Solution Ltd (LGES) said it was seeking battery production sites in Europe and Asia outside China, where that country’s COVID-19 lockdowns and rising input costs left quarterly profit below market estimates.
The South Korean firm, which supplies electric vehicle (EV) batteries to automakers including General Motors Co, Ford Motor Co, and Volkswagen AG, said it was responding to increased demand in Europe for cylindrical batteries – the type used by Lucid and Tesla Inc.
“With the easing chip shortage and auto customers’ plans to launch new models as well as solid EV demand among customers, we expect solid demand for the pouch and cylindrical EV batteries in the second half of this year,” Chief Financial Officer Lee Chang Sil said in a post-earnings conference call.
Analysts are divided on what EV demand will look like as inflation and interest rates surge, while snarled supply chains and China’s COVID-19 containment measures hurt production.
Still, some analysts said it would take another year for premium EV sales to slow and have an impact on battery sales because supplies were tight due to pent-up demand.
LGES said it aims to expand joint ventures for the pouch and cylindrical batteries for strategic customers and EV startups in North America.
It said it was reviewing a 1.7 trillion won ($1.29 billion) investment in a cylindrical cell plant in U.S. Arizona state and would reissue a statement on the matter in three months. There was no demand change but extreme inflation plus rising logistics and building costs prompted it in June to delay construction which in March it said would begin in the second quarter.
LGES said it plans to start selling lithium iron phosphate (LFP) batteries manufactured in its China plant in 2023 and add a new LFP battery production line at its factory in the U.S. state of Michigan in 2024 to meet to demand in North America.
LGES raised its revenue outlook for the full year to 22 trillion won from 19.2 trillion won and above the 20.9 trillion won average of 30 analyst estimates compiled by Refinitiv. For April-June, revenue fell 1.2% from the same period a year earlier to 5.1 trillion won.
Sales to Tesla during the quarter suffered from the U.S. automaker pausing production at its Shanghai factory in March and April due to COVID-19 lockdowns.
Analysts expect profitability to recover in the second half of the year as LGES renegotiates terms with customers and passes on raw material costs.
Operating profit dropped to 196 billion won for April-June from 724 billion won a year earlier, when LGES booked a one-time gain from a settlement with domestic rival SK On.
The result compared with the 199 billion won average of 21 analyst estimates according to Refinitiv SmartEstimate.
The battery maker’s share price fell as much as 3 per cent on Wednesday after a six-month post-listing lock-up on the sale of its shares expired.