LG Energy Solution to Triple Revenue, Achieve Double-Digit Operating Profit Margin in 5 Years

LG Energy Solution to Triple Revenue, Achieve Double-Digit Operating Profit Margin in 5 Years
LG Energy Solution

LG Energy Solution (LGES; KRX: 373220) today announced its mid to long-term corporate strategies, with the goal of more than tripling revenue in five years and achieving a double-digit operating profit margin. The company also increased the annual revenue target to KRW 22 trillion.

At the second quarter earnings conference call, LGES said it would increase revenue over three times in five years by expanding JVs with OEMs in North America, scaling up the supply of cylindrical batteries, developing the new form factor, and discovering new business opportunities.

The company also aims to achieve a double-digit operating profit margin by obtaining technological leadership with differentiated chemistries and processes. In addition, LGES will devote itself to stabilizing and localizing the value chain based on strategic partnerships and also to enhancing the quality and manufacturing capability with a smart factory.

“Our ultimate goal is to provide the world-best QCD (Quality, Cost, Delivery) to our customers, thereby becoming the number one company in terms of profitability, loved and trusted by our customers,” said Youngsoo Kwon, CEO of LG Energy Solution. “Going forward, we will continue to secure technological leaderships and reinforce our product competitiveness.”

Reinforcing Portfolios through Selective Strategies

LGES plans to focus on the North American market, where the fastest growth is expected. On pouch-type batteries, LGES plans to expand JV partnerships with its major partners, and on cylindrical batteries, it intends to supply to not only the existing strategic customers but also EV start-ups, thereby reinforcing its competitive edge in the market.

In addition, the company will add a new production footprint for cylindrical batteries in Europe to cope with increasing demand and also secure a new production site in Asia, in addition to the existing production facilities in Korea and China

“The current production capacity is more heavily invested in Asia (59%) and Europe (34%), compared to North America (7%),” explained LG Energy Solution. “We aim to increase the production capacity in North America to 45 percent by 2025, thereby enabling a balanced global operation portfolio of 45 percent in North America, 35 percent in Asia, and 20 percent in Europe.”

In terms of product portfolio, LGES plans to reinforce the dual form factor portfolio of pouch-type and cylindrical batteries and, at the same time, continue its R&D efforts for next-generation battery technology.

On premium pouch-type batteries, LGES will maintain its product competitiveness by applying single crystal NCMA cathode and silicon anode. On mainstream segment of pouch-type batteries, the company will secure enhanced cost-competitive technologies such as LFP and manganese-rich chemistries.

In terms of cylindrical batteries, LGES aims to lead the market by securing the mass-production capability for the new 4680 battery. In addition, the company will focus on developing next-generation battery technologies such as polymer-based solid-state battery and sulfide-based solid-state battery.

Strengthening Competitiveness in Quality, Cost and Delivery

LGES also plans to offer the highest level of QCD (Quality, Cost, Delivery) to customers by concentrating on product quality, smart factory, value chain, and new businesses.

For product quality assurance, LGES will improve the product design and manufacturing processes, thereby minimizing the possibility of defects. The company will also establish a full in-line inspection system and upgrade the safety diagnostic algorithm in Battery Management System (BMS) to detect abnormal cases pre-emptively.

Another key factor in enhancing product quality lies in establishing a smart factory, a system that carries out all decision-making on machine-produced data independent of human experience and capabilities. Through smart factory technology, LGES aims to increase yield, stabilize product quality, improve manufacturing processes and boost productivity, and enhance workforce efficiency.

LGES also plans to establish a stable supply chain by investing in upstream suppliers and expanding long-term supply contracts. Also, the company will implement a closed-loop system of collecting used batteries and recycling them through partnerships with leading material recycling companies.

In addition, LGES will reinforce the investment for the future and new businesses, such as BaaS (Battery as a Service) model based on battery data, as well as EaaS (Energy as a Service) model, while maintaining the conservative approach when it comes to expansions to increase the profitability of its investments.

Annual Revenue Target Adjusted to KRW 22 trillion

LGES also made an upward adjustment to the annual revenue target to KRW 22 trillion, a KRW 2.8 trillion increase from the previous target (KRW 19.2 trillion) set early this year. Last year’s annual consolidated revenue recorded KRW 17.9 trillion.

The company predicted the revenue for the second half of this year would reach KRW 12.6 trillion, a 48 percent increase on year (KRW 8.5 trillion), and a 34 percent increase from the first half of 2022 (KRW 9.4 trillion).

“We expect a meaningful revenue growth in the second half of this year, capitalizing on increased demand from OEMs’ new model launch, phase 1 production ramp-up of Ultium Cells (GM JV)’ Ohio plant, and the price impact from cost pass-through mechanisms,” explained LGES.

Steady Growth in Q2 Revenue Despite Challenging Economic Conditions

LGES reported its second quarter financial results of KRW 5.071 trillion in consolidated revenue and KRW 195.6 billion in operating profit.

The second quarter revenue of 2022 increased by 16.8 percent, and the operating profit decreased by 24.4 percent from the previous quarter. Compared to the same period last year, the revenue decreased by 1.2 percent and the operating profit by 73 percent. The second quarter operating profit of last year includes one-off factors such as provisions related to recalls and a lump-sum payment of license fee from another industry player. Taking these factors into account, this year’s second quarter revenue recorded a modest decrease on year.

“This quarter’s profitability has shown a moderate drop, mainly due to the impacts from lock-down measures in China, global supply chain disruptions, and the time gap between the actual increase in material costs and applying them to selling prices,” said Chang Sil Lee, CFO of LG Energy Solution at the conference call. “Nevertheless, steady growth in revenue was possible thanks to the strong sales of cylindrical cells for EV, as well as successfully passing through major metal price hikes to the battery prices.”