LG Energy Solution to invest W7tr this year to ramp up production

LG Energy Solution said Wednesday it plans to invest 7 trillion won ($5.54 billion) this year to boost its production capacity in key markets while improving profitability overall by offsetting the impact from supply chain constraints and rising costs.

The South Korean battery giant unveiled its plans during an earnings conference call earlier in the day.

The big spending, up more than 10 percent from 6.3 trillion won announced in February, will be poured into the US, a burgeoning EV market where the company has set up several joint ventures with local carmakers. It will also expand production lines in China, which produce cylindrical batteries for Tesla.

Under the plans, LG Energy Solution aims to elevate its production capacity from 200 gigawatt hours in the end of this year to 520 gigawatts hours by 2025. 

As for funding, the company said it has preserved a cash flow of 10.2 trillion won from its blockbuster stock debut in January. It is planning to secure more cash from its business operations and investments from its joint venture partners.

On the day, LG Energy Solution reported 4.34 trillion won in sales in the January-March period, up 2.1 percent from a year ago. Its operating profits suffered a 24.1 percent fall at 258.9 billion won, but the figure largely outpaced earlier analysts’ estimates of some 160 million won.

“There were several factors deepening business uncertainties such as rising costs of raw materials, chip shortages and supply constraints from the Russia-Ukraine tensions,” said LG Energy Solution Chief Financial Officer Lee Chang-sil.

“But we could post estimate-beating earnings due to the solid demand for cylindrical batteries and our efforts to improve profitability and productivity overall,” he added.

In particular, Lee projected a limited impact on the firm from rising costs, saying it has agreed with its long-term clients to adjust battery prices depending on fluctuations in materials costs.

The firm also hinted at a double-digit growth in the second quarter, boasting an order backlog of 300 trillion won as of end of March. Its key clients include General Motors, Stellantis, Volkswagen, Hyundai Motor, Kia Motors, Renault and Volvo.

For the whole year, the firm is expected to post 19.2 trillion won in sales, up about 10 percent from last year’s 17.9 trillion won.

By Lee Ji-yoon (jylee@heraldcorp.com)