Profit for LG Energy Solution Exceeds US Tax Credit Estimates

In response to a growing demand for electric vehicles around the world and the potential tax credit offered by US President Joe Biden's climate bill, the South Korean battery manufacturer LG Energy Solution Ltd. posted good financial results that surpassed analyst estimates.

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633.2 billion won ($480 million) was the operating profit for the three months that ended March 31. Compared to Trade Algo’s estimate of 483 billion won sales for the first quarter were 8.75 trillion won, surpassing the estimate of 8.3 trillion won and more than double what it achieved a year ago.

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After LG Energy Solution's top-line numbers were released, its shares jumped as much as 1.7% in Seoul. In its final results, LG Energy Solution will provide more detailed financial details. 

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A tax credit of 1000.3 billion won is also included in its quarterly operating profit from the US Inflation Reduction Act. According to the company, its actual operating profit increased by 106% in the year before, excluding the so-called Advanced Manufacturing Production Credit.

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A separate statement from LG Energy Solution said domestic battery manufacturers would be eligible for a $35/kWh tax credit under the Advanced Manufacturing Production Credit under the IRA starting in 2023. According to the company, it will reflect the estimated tax credit in its financial results in the first quarter of 2023.

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A weaker Korean won and higher interest rates didn't dampen demand for cleaner cars, according to an analyst at NH Investment & Securities Co. As a result of the US guidance and clarifications on Biden's landmark climate bill, Korean battery makers have also been able to relax some requirements on securing critical minerals. 

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LG Energy Solution did not release more detailed figures for the quarter, but a recent drop in lithium prices may put EV batteries at a disadvantage since they operate at a lower cost. A Trade Algo analyst believes lithium is particularly important in the manufacture of cathodes, which account for two-thirds of a battery's cost. 

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As a result of slower demand for electric vehicles in China along with a rise in supply from new mines, Chinese lithium carbonate prices fell 56% in the first quarter. Since January, battery cell prices have dropped by 16%, according to BNEF. 

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As a result of a drop in selling prices, LG Energy Solution might increase its shipments to offset any losses, according to Hanwha Investment & Securities Co. analyst Lee Yongwook. 

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South Korean battery giants face stiff competition not only from Chinese rivals offering cheaper batteries but also from electric vehicle manufacturers trying to lower their costs. In February 2018, LG held 13.3% of the global electric vehicle battery market, down from its previous second spot in 2022. Over half of the market is now controlled by China's Contemporary Amperex Technology Co. Ltd., or CATL. 

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In addition, CATL and Ford Motor Co. are planning a $3.5 billion battery factory, while Tesla Inc. has expressed interest in building a facility in the US with a Chinese cell manufacturer.

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It developed lithium-iron-phosphate batteries to lower costs in its own bid to reduce costs. 7.2 trillion won will be invested in the construction of a massive factory to produce iron-based batteries in Arizona, according to a plan released in March.

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Last month, LG Energy Solution said the IRA had "significantly increased" the demand for electric vehicle batteries in North America. It also expected the IRA to spur growth in the renewable energy industry.

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