LG Energy Solution Faces Challenges Amid Sluggish Performance, Eyes Recovery with Tesla Partnership
LG Energy Solution, a key player in the global battery industry, has reported a disappointing fourth quarter in 2023, with significant losses and declining sales. The company, which is part of Tesla’s supply chain, is now navigating a challenging landscape marked by inventory adjustments, rising costs, and delayed demand recovery. However,analysts suggest that a rebound could be on the horizon,driven by strategic partnerships and market dynamics.
A Tough Quarter for LG Energy Solution
In the fourth quarter of 2023, LG Energy Solution recorded sales of KRW 6.4512 trillion, a 19.4% decline compared to the same period in 2022.The company also reported an operating loss of KRW 225.5 billion, significantly higher than the consensus estimate of KRW 187 billion.
Joo Min-woo, a researcher at NH Investment & Securities, attributed the poor performance to one-time costs related to inventory disposal and the burden of fixed costs due to sluggish sales.“The operating profit ratio excluding one-time costs is estimated at 1.2%,” he noted.
the sluggish sales were further exacerbated by inventory adjustments by customers in Europe and North America. Junsu Kwon, a researcher at Kiwoom Securities, explained, “Sales of mid- to large-sized batteries fell short of expectations due to year-end inventory adjustments in Europe and North America.” He also pointed to delays in the energy storage system (ESS) sector and the negative impact of rising metal prices as contributing factors.
Challenges Ahead in 2024
The outlook for 2024 remains uncertain. Cho Hyun-ryeol, a researcher at Samsung Securities, maintained a neutral investment opinion on LG Energy Solution, citing “difficult industry conditions” due to policy changes in the United States and delayed global demand recovery in the frist half of the year.
Samsung Securities also lowered its target stock price for LG Energy solution from KRW 430,000 to KRW 410,000, reflecting a shift in valuation metrics. Researcher Cho explained, “Since the U.S. plants jointly operated with Stellantis, Honda, and Hyundai Motor Group have begun operation, and the performance of the joint ventures affects the performance of LG Energy Solutions, pure fundamentals can be steadfast through the net profit of controlling shareholders.”
A Silver Lining: Tesla Partnership
Despite the challenges, LG Energy Solution’s partnership with Tesla offers a glimmer of hope. The company is expected to benefit from the launch of Tesla’s Model Y Juniper, a partially modified (facelift) model. Joo Min-woo highlighted this as a key factor that could drive stock price fluctuations in the first half of 2024.
“We recommend purchasing if this year’s performance estimates are adjusted after the performance briefing,” he said. “Given the strong pre-orders for Model Y Juniper, the Trump administration’s strengthening of China’s CATL regulations, and the short-term rebound in lithium prices, LG energy Solution’s stock price could rise.”
Potential Recovery in the Second Half of 2024
Analysts suggest that a rebound in the battery sector could begin in the second half of 2024. Junsu Kwon of Kiwoom Securities noted, “A full-fledged recovery in the industry will only be possible next year, but considering the lead in stock prices, the secondary battery sector will likely rebound starting in the second half of this year.”
Key Takeaways
| Metric | Q4 2023 performance | 2024 Outlook |
|————————–|——————————-|————————————–|
| Sales | KRW 6.4512 trillion (-19.4%) | Challenging due to policy changes |
| Operating Loss | KRW 225.5 billion | Potential recovery in H2 2024 |
| Key Factors | Inventory adjustments, rising costs | Tesla partnership, Model Y Juniper |
| Analyst Recommendations | Neutral (Samsung Securities) | Buy (NH Investment & Securities) |
Looking Ahead
While LG Energy Solution faces significant headwinds, its strategic partnerships and market positioning could pave the way for recovery. The company’s role in Tesla’s supply chain and the anticipated rebound in lithium prices offer reasons for cautious optimism.
For more insights into the battery industry and market trends, explore our analysis on global battery demand and the impact of policy changes on energy storage systems.
what are your thoughts on LG Energy Solution’s future? Share your opinions in the comments below or join the conversation on our social media channels.
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This article is based on exclusive reporting by Han Kyung-woo of Hankyung.com. For further details, visit the original article.
LG Energy Solution Faces Challenges Amid Sluggish Performance, eyes Recovery with Tesla Partnership
LG Energy Solution, a leading player in the global battery industry, has faced a challenging fourth quarter in 2023, marked by significant losses and declining sales. The company, a key supplier to Tesla, is navigating a complex landscape of inventory adjustments, rising costs, and delayed demand recovery.However, analysts suggest that strategic partnerships and market dynamics could pave the way for a rebound. In this interview, we sit down with Dr. Seo Ji-hoon, a battery industry expert, to discuss LG Energy Solution’s performance, challenges, and future prospects.
A Tough Quarter for LG Energy Solution
Senior Editor: Dr. Seo, LG Energy Solution reported a 19.4% decline in sales and an operating loss of KRW 225.5 billion in Q4 2023. What factors contributed to this performance?
Dr. Seo Ji-hoon: The poor performance can be attributed to several factors. First, there were significant one-time costs related to inventory disposal, which weighed heavily on the company’s financials. Additionally, sluggish sales, particularly in Europe and North America, exacerbated the situation.Customers in these regions were adjusting their inventories, leading to lower-than-expected sales of mid- to large-sized batteries. Rising metal prices and delays in the energy storage system (ESS) sector further compounded the challenges.
Challenges Ahead in 2024
Senior Editor: what are the key challenges LG Energy Solution faces in 2024?
Dr. Seo Ji-hoon: The outlook for 2024 remains uncertain.Policy changes in the United States and delayed global demand recovery in the first half of the year are significant hurdles. Samsung Securities has maintained a neutral investment opinion on LG Energy Solution, reflecting these challenging industry conditions. The company’s joint ventures with Stellantis, Honda, and Hyundai Motor Group in the U.S. are operational, but their performance will directly impact LG Energy Solution’s results. While these ventures offer long-term potential, the short-term challenges are undeniable.
A Silver Lining: tesla Partnership
Senior Editor: despite these challenges, LG Energy Solution’s partnership with Tesla seems promising. How significant is this collaboration?
Dr.seo Ji-hoon: The Tesla partnership is indeed a silver lining. LG Energy Solution is expected to benefit from the launch of Tesla’s Model Y Juniper, a partially modified model that has garnered strong pre-orders. this could drive stock price fluctuations in the first half of 2024. Additionally, the trump administration’s tightening of regulations on China’s CATL and a short-term rebound in lithium prices could further boost LG Energy Solution’s stock. Analysts reccommend purchasing the stock if performance estimates are adjusted favorably after the company’s briefing.
Potential Recovery in the Second Half of 2024
Senior Editor: Do you see a recovery on the horizon for LG Energy Solution?
Dr. Seo Ji-hoon: Analysts suggest that a rebound in the battery sector could begin in the second half of 2024. While a full-fledged recovery may take longer, the secondary battery sector is likely to see a rebound starting in the latter half of the year. This is driven by improved market conditions, strategic partnerships, and the anticipated recovery in lithium prices. Though,the company must navigate the current challenges carefully to capitalize on these opportunities.
Key Takeaways
| Metric | Q4 2023 Performance | 2024 Outlook |
|---|---|---|
| Sales | KRW 6.4512 trillion (-19.4%) | challenging due to policy changes |
| Operating Loss | KRW 225.5 billion | Potential recovery in H2 2024 |
| Key Factors | Inventory adjustments, rising costs | Tesla partnership, Model Y juniper |
| Analyst Recommendations | Neutral (Samsung Securities) | Buy (NH Investment & Securities) |
Looking Ahead
Senior Editor: What are your final thoughts on LG Energy Solution’s future?
Dr. Seo Ji-hoon: While LG Energy Solution faces significant headwinds, its strategic partnerships, particularly with Tesla, and its market positioning offer reasons for cautious optimism. The company’s role in Tesla’s supply chain and the anticipated rebound in lithium prices could pave the way for recovery. However, the road ahead is challenging, and the company must adapt to evolving market conditions to thrive in the long term.
For more insights into the battery industry and market trends, explore our analysis on global battery demand and the impact of policy changes on energy storage systems.
This interview is based on exclusive reporting by Han Kyung-woo of hankyung.com. For further details, visit the original article.
