LG Energy Solution Cuts 2024 Spending Amid Slow EV Demand, Warns of 2025 Challenges

LG Energy Solution announced significant capital expenditure cuts for 2024, citing a sluggish EV market, geopolitical risks, and mounting competition, especially from Chinese battery makers. The South Korean battery supplier to automakers like Tesla and GM shared a cautious outlook for 2025, focusing on strategic, essential investments.

LGES Predicts Tightened 2025 Revenue and Spending, Citing EV Demand and Geopolitical Uncertainty

LG Energy Solution, a battery manufacturer in South Korea, announced on October 28 that it would substantially reduce capital expenditure in response to the declining demand for electric vehicles and maintained a "conservative" outlook for revenue growth in the upcoming year. According to Reuters, this announcement was made following a 39% decline in third-quarter profits.

The company's CFO, who supplies Tesla, General Motors, and Hyundai Motor, also anticipates that next week's outcome of the U.S. presidential election will substantially influence the EV market.

"Looking ahead to 2025, we see continuing macro uncertainty and geopolitical risk, increased (battery) exports by Chinese rivals, as well as (automaker) customer plans to manufacture their own batteries, which would intensify competition," Chief Financial Officer Lee Chang-Sil said on an earnings call.

"When it comes to revenue growth next year, we have a rather conservative outlook," Lee said. "We expect capital expenditure to be significantly reduced next year compared to this year, except for some essential and necessary investment."

Due to the slower development of electric vehicles (EVs), LGES announced in April that it intended to decrease capital expenditures this year. It also stated earlier this year that the capital expenditure in 2024 would be comparable to the 10.9 trillion won spent in the previous year.

Several manufacturers are reducing their electrification objectives due to the slowing demand for electric vehicles (EVs). This decline results from various factors, including the scarcity of affordable models, the slow proliferation of charging stations, trade tensions, and increased competition from cheaper Chinese competitors.

LGES Anticipates Gradual EV Demand Recovery Amid Political Shifts, Posts $322M Quarterly Profit

In July, a senior LGES executive informed Reuters that demand is expected to recover in approximately 18 months in Europe and two to three years in the United States, contingent upon climate policies and other regulations.

"The general view is that the pace of EV demand growth could be slower if Donald Trump is elected to a second term in the White House (compared with under Kamala Harris) as he has suggested cutting EV tax credits," said analyst Kang Dong-jin at Hyundai Motor Securities.

LGES reported an operating profit of 448 billion won ($322.84 million) for the July to September period, consistent with its previous forecast but lower than the 731 billion won reported in the same period a year ago.

Nevertheless, the battery manufacturer surpassed the 374 billion won LSEG SmartEstimate, which was determined by averaging the estimates of 20 analysts and weighting them in favor of those more consistently accurate due to increased demand from a few European and North American automakers.

LGES stated that it would have recorded an operating loss of 18 billion won in the quarter if it had not received a tax credit under the U.S. Inflation Reduction Act.

Revenue decreased by 16% to 6.9 trillion won.

Following the results, LGES' share price increased by 1.2%, surpassing the benchmark KOSPI's 0.9% increase.