LG Energy Solution plans to boost revenue through joint ventures, batteries, smart manufacturing

LG Energy Solution reported in its second quarter call that revenue increased 16.8% but operating profit decreased by 24.4% from the previous quarter, and was down 73% from the second quarter of 2021. The Q2 2021 profit increase was due in part to the $1.8 billion settlement with SK Innovation in a trade secret dispute over EV batteries. Looking forward, LG sees a bright future, driven by scaling up manufacturing of EV batteries. The company intends to triple revenue in five years and achieve a double-digit operating profit margin, setting an annual revenue target to $16.74 billion.

“This quarter’s profitability has shown moderate drop, mainly due the impacts from lock-down measures in China, global supply chain disruptions, and the time gap between the actual increase in material costs and applying them to selling prices,” said Chang Sil Lee, CFO of LG Energy Solution at the conference call. “Nevertheless, steady growth in revenue was possible thanks to the strong sales of cylindrical cells for EV, as well as successfully passing through major metal price hikes to the battery prices.”

LG also aims to achieve double-digit operating profit margin through strategic partnerships and focusing on the growing North American market. Earlier this year LG Energy Solution announced a commitment to construct a $2.1 billion battery manufacturing plant in Lansing, Michigan with General Motors to mass produce 50 GWh of EV batteries under the Ultium Cell brand. Ultium devices are unique due to their large-format, pouch-style cells that can be stacked vertically or horizontally inside a battery pack, enabling engineers to optimize energy storage and layout for each vehicle design.

“With a shared vision, GM and LG Energy Solution pioneered the EV sector by seizing new opportunities in the market well before anyone else did,” LG Energy Solution chief executive Young-Soo Kwon said. “Our third battery manufacturing plant, fittingly located in America’s automotive heartland, will serve as a gateway to charge thousands, and later, millions of EVs in the future.”

The US Energy Department intends to loan Ultium Cells LLC, a joint venture of General Motors Co. and LG Energy Solution, $2.5 billion to help finance construction of new lithium-ion battery cell manufacturing facilities in Ohio, Tennessee, and Michigan.

LG plans to expands its joint venture partnerships with major partners in developing both cylindrical and pouch-type batteries, supplying existing customers as well as EV startups. The company plans to add a new production footprint for cylindrical batteries in Europe to cope with increasing demand, and also secure a new production site in Asia, in addition to the existing production facilities in Korea and China.

“The current production capacity is more heavily invested in Asia (59%) and Europe (34%), compared to North America (7%),” explained LG Energy Solution. “We aim to increase the production capacity in North America to 45% by 2025, thereby enabling a balanced global operation portfolio of 45% in North America, 35% in Asia, and 20% in Europe.”

LG said it intends to focus on quality in its design and manufacturing processes, establishing a full in-line inspection system and upgrading the safety diagnostic algorithm in its Battery Management System. It is also dedicated to establishing smart factories, which it expects will increase yield, stabilize product quality, improve manufacturing processes, boost productivity, and enhance workforce efficiency. The company is also working to establish a stable supply chain by investing in upstream suppliers and expanding long term supply contracts. It is also focused on establishing a battery recycling program through partnerships with material recycling companies.