The US Inflation Reduction Act propelled LG Energy Solution to an astounding income haul in its Q1 2023 results.
LG Energy Solution Ltd recently posted its Q1 2023 earnings, revealing a more than double profit haul. For the first quarter of the year, the Seoul-based battery company posted a 145% jump in profit and a 101% revenue rise to 8.7 trillion won. LG Energy Solution’s reported operating profit for the year’s first three months was 633 billion won (S$633.1 million). A year ago, the company realized a much smaller haul of 259 billion won.
For the first quarter of 2023, LG Energy Solution Ltd also reported a net profit of 500.6 billion won ($374 million), beating consensus expectations. The company’s shares rose 2.4% during the early Seoul trading session and are up approximately 30% this year.
In reporting its Q1 2023 figures, LG Energy Solution factored in subsidies from the US Inflation Reduction Act. Furthermore, the prominent battery maker also considered solid sales of electric vehicles in Western markets, which analysts attributed as the reason for the profit jump.
US Inflation Reduction Act Applicability
The increase in sales of EVs in the US was boosted by the Inflation Reduction Act tax credit that grants consumers up to $7,500 off. However, the US Inflation Reduction Act requires half of the battery component value to be produced or assembled in North America for eligibility for perks. These associated perks include a $3,750 credit and 40% of critical mineral value sourced from the US. Also, the Act necessitates the production of 50% of battery components in North America. This requirement helps to qualify for a free trade partner that offers $3,750 in credit.
LG Energy Solution acknowledged it received requests from prominent auto-manufacturing clients regarding boosting battery supply since the US law took effect. Although this development could lead to additional orders, the company also foresees lower metal prices impacting future revenue. LG Energy Solution revealed it signed “cost pass-through” contracts with its clientele to better manage material costs. Lee Chang-sil, the chief financial officer of the company which supplies automakers such as Tesla (NASDAQ: TSLA) and General Motors (NYSE: GM), said:
“EV demand in North America remains very strong. Although demand in Europe seems to be limited and metals prices are falling, we’re pretty sure we can meet our initial goal for 30% sales growth for 2023.”
The company added that changes in metal costs would likely reflect in the second half of 2023. However, the profitability impact would also likely remain limited.
Following Q1 2023 Performance, LG Energy Solution Expects to Continue Beating Chinese Rivals in the US
One of the largest EV battery makers globally, LG Energy Solution is confident about outpacing Chinese rivals in the US. According to Lee, conquering the American market is no small feat and requires extensive prior experience. As LG Energy Solution CFO put it:
“It won’t be easy for the Chinese companies to enter the US. It’s not just a matter of investment. You need a lot of experience to build supply chains and operate plants. It takes a lot of time.”
LG Energy Solution is currently testing cylindrical cell batteries used by Tesla at a facility in Korea. The Seoul-based battery company plans to begin mass production by the end of 2023.