Battery maker LG Energy Solution warns of slowing EV demand, shares tumble

South Korean battery firm LG Energy Solution (LGES) (373220.KS) warned last week of slowing revenue growth in 2024 due to global economic uncertainties affecting the outlook for electric vehicle sales, sending its shares down nearly 9 per cent.

It joins a growing number of automakers and suppliers expressing caution about demand for EVs, as they fear high interest rates lifting financing costs and sputtering growth in major economies such as China and Europe will impact car buyers.

“EV demand next year could be lower than expectations,” LGES Chief Financial Officer Lee Chang-sil said on an earnings call, citing those factors, as well as automakers adjusting their EV strategies in response.

LGES, which supplies Tesla (TSLA.O), General Motors (GM.N) and other automakers, said revenue growth in 2024 would not be as high as the mid-30 per cent rate forecast for this year.

A recovery in demand from European manufacturers is likely to be delayed as Chinese rivals launch cheaper EVs in the region, LGES Vice President Kim Gyunghoon said on the call. LGES is lowering production at its Poland factory in response to minimise costs, Kim added.

In the US, GM, its joint venture partner in an Ohio battery plant and two more under construction, said on Tuesday that it was slowing the launch of several EV models to cut costs and pulling back on EV product spending to put profits ahead of sales targets.

Lee said the company was closely monitoring the United Auto Workers (UAW) strikes in the US against its customers GM, Ford (F.N) and Chrysler parent Stellantis (STLAM.MI) because a rise in wages could have a significant impact on the automakers’ operations and profitability.

The UAW is bargaining over future wages and unionisation policies for the Detroit Three’s US battery plant joint ventures, though Lee said LGES profit would not be impacted as much because of cost pass-through contracts.

LGES shares closed down 8.7 per cent at the lowest level in nearly 15 months, versus the benchmark KOSPI’s (.KS11) 0.9 per cent fall.

Kang Dong-jin, an analyst at Hyundai Motor Securities, said LGES shares had fallen before the earnings announcement on the negative news from GM but dropped further during the earnings call because of the weaker outlook.

Despite expectations that demand growth is slowing, LGES said it was boosting the production capacity of wholly-owned its Arizona battery plant to 36 gigawatt hour (GWh) from 27 GWh, as it seeks to take advantage of tax credits offered for US manufacturing.

LGES added that it planned to produce energy-dense 46-series cylindrical battery cells with a longer driving range at its Arizona plant, aiming to start production in late 2025.

The company also said it would produce cheaper lithium iron phosphate (LFP) batteries from 2026 to better respond to demand for lower-priced EVs.

LGES posted a 40 per cent rise in third-quarter profit to 731 billion won ($543.46 million) in line with the company’s earlier guidance, helped by increased output from its Ohio joint venture factory with GM.

September quarter revenue rose 7.5 per cent year-on-year to 8.2 trillion won, LGES said. But it was down 6 per cent from the June quarter due to the demand slowdown in Europe, production adjustments by automakers and lower metal prices.

($1 = 1,345.0800 won)