Decrease in electric vehicle production, increase in raw material prices, impact of war
“Mitigation of impact by applying major metal price linkage contracts”
Promotion of expanding application of metal → non-metal to items linked to the selling price
LG Energy Solution held an earnings presentation on the 27th and announced that its operating profit in the first quarter of this year was 258.9 billion won, down 24.1% from the same period last year (341.2 billion won). Sales increased by 2.1% to 4.25 trillion won, but operating profit decreased by more than 20%, showing deterioration in profitability.
Chang-sil Lee, Executive Vice President, LG Energy Solutions, Chief Financial Officer, said, “Difficult business conditions such as a decrease in finished vehicle production due to a rise in raw material prices, a shortage of semiconductors for vehicles, and a shortage of parts due to the war had an impact on the company’s performance. “We achieved better-than-expected performance based on battery supply price adjustment through linkage between the demand for cylindrical batteries for electric vehicles and the price of major raw materials (nickel, cobalt, lithium, etc.), and productivity improvement through process automation.”
Although operating profit decreased and sales did not grow as expected, it is an atmosphere that made good progress internally in a difficult external environment.
On the same day, LG Energy Solutions announced major tasks for this year, such as improving profitability, securing product competitiveness, and strengthening quality capabilities. First, it plans to respond more actively to changes in metal supply and demand and raw material prices to improve profitability. The strategy is to stabilize supply by expanding long-term supply contracts and strategic equity investments with major raw material suppliers such as lithium, nickel, and cobalt, and to increase price competitiveness by expanding the range of metals linked to prices. The price-linked metal range will be expanded from lithium, nickel, and cobalt to copper, aluminum, and manganese, and the price increase factor will also be reflected in the selling price of non-metal raw materials such as anode materials, electrolytes, binders, and separators.
A ‘smart factory’ system based on automation, information and intelligence will be introduced at all global production bases. Through this, the company plans to speed up manufacturing competitiveness while reducing costs. This includes recruiting smart factory experts (CDO) and strengthening the organization, securing and building digital twin (real world simulation online space) capabilities, and building and upgrading overseas remote support systems. It also attempts to secure product competitiveness through fundamental structural improvement. In the case of pouch-type products, safety and cost improvement will be promoted by securing heat diffusion suppression pack solutions and developing new materials-based electric vehicles and energy storage system (ESS) products such as cobalt-free. Cylindrical products seek to strengthen competitiveness through the development of new high-capacity part factor products. We will also strengthen our quality capabilities. Focusing on major quality tasks such as product robustness design and improvement of construction methods, introduction of a complete inspection system for each process, establishment of a complete quality organization system from identification of causes to customer response, reinforcement of fire cause analysis and traceability, and expansion of investment in infrastructure .
We continue to make active investments. LG Energy Solutions plans to invest about KRW 7 trillion in facilities to expand global battery production capacity this year. LG Energy Solutions said, “As various new projects such as joint ventures and independent factories in North America and expansion of a cylindrical production line in China are underway, the total investment expected has increased.”
Through the investment, LG Energy Solutions aims to expand its global production capacity from 200 GWh at the end of this year to 520 GWh by 2025. The annual sales target for this year was set at 19.2 trillion won, an increase of about 1.3 trillion won from last year (17.9 trillion won). It is a difficult situation, but the plan is to achieve the sales target through the effect of new car launches by major customers and the expansion of sales of major products, including cylindrical batteries for electric vehicles.
“Although the global business environment is still difficult, we will continue to strengthen our product competitiveness and quality capabilities,” said Kwon Young-soo, CEO of LG Energy Solutions.
Reporter Min-beom Kim, Donga.com [email protected]