LG Energy Solution Ltd. 's profits fell due to subdued growth in EV (electric) vehicles, which is affecting the battery maker's sales and profitability.
The supplier to General Motors Co., Volkswagen AG and Tesla Inc., along with other auto giants, reported operating profit of 157.3 billion won ($116 million) for the first quarter of the year. The company reported this on Friday, missing analysts’ forecasts. Without the tax relief provided by U.S. President Joe Biden, LG would have posted a loss of 31.6 billion won.
See more: LG Electronics plans major investments
LG will announce final first-quarter results this month, likely on April 25. shares fell 0.9% in Seoul, with the announcement coming minutes before the close of trading.
The electric vehicle (EV) market is expected to grow 23% this year from 2023, according to BloombergNEF reports. Although growth is slower than last year, it is expected to be a challenging period for manufacturers of batteries, the most expensive component of an electric vehicle. That's because automakers are looking for ways to reduce their costs, according to a report by Cindy Park, an analyst at Nomura Securities Co.
This week, Tesla reported its latest sales figures that fell short of analysts’ forecasts and warned that its growth would be “significantly lower” this year, blaming rising interest rates and other factors affecting consumer demand. In February, Renault SA CEO Luca de Meo expressed similar concerns, saying this year could be a challenge for electric vehicles. Sales are expected to recover only by 2025.
Without the U.S. tax breaks, LG’s earnings would have reached a point of negative fundamentals, according to a note by Rho Wooho, an analyst at Meritz Securities Co, on April 3. Battery shipments to electric vehicle makers appear to have declined since the end of last year, while falling raw material prices would put downward pressure on battery selling prices, according to Rho.
In the first quarter, LG Energy reported sales of 6.13 trillion won, down 30% year-on-year, lower than the previous 6.9 trillion won forecast by the market.
Read also: Honda and LG Energy Solution to build EV battery factory in the US
The price index for Chinese lithium carbonate, used in electric vehicle batteries, fell 6% last week. Lithium prices are expected to see some decline in the second quarter, according to a report by Daol Investment & Securities Co.
Source: bnnbloomberg
