LG Energy Solution anticipates a significant 152% increase in profit for the second quarter of the year compared to last year.
Seoul, South Korea – LG Energy Solution (LGES), a key electric vehicle battery supplier for General Motors and Tesla, has reported an impressive 152% increase in its quarterly operating profit for the April-June period. This surge is primarily attributed to increased demand from automakers and substantial U.S. tax credits.
The company's estimated operating profit for the second quarter stands at 492 billion won ($360.94 million), which is higher than its profit a year earlier (195 billion won) and the forecast compiled by LSEG SmartEstimate (294 billion won). However, the operating profit, when excluding tax credits, is significantly lower compared to the estimated profit without such exclusions.
Analysts attribute the profit surge to automakers rushing to secure battery cells before potential new U.S. tariffs and anticipating a recovery in electric vehicle demand, prompting early purchases in Q2 2022. LGES also benefited from a tax credit under the U.S. Inflation Reduction Act (IRA), specifically the Advanced Manufacturing Production Tax Credit (AMPC), which provided a subsidy of about 490.8 billion won – a 7% increase from the previous quarter.
Despite a 9.7% year-over-year decline in sales and an 11.2% quarter-over-quarter drop, the improved demand dynamics and subsidies have led to a substantial increase in profit. Excluding IRA subsidies, LG Energy Solution's operating profit was still positive at 1.4 billion won for the first time in six quarters, showing improved operational efficiency besides the subsidy impact.
LGES is expected to release detailed results in late July, providing a clearer picture of the exact operating profit, including the impact of the U.S. Inflation Reduction Act. The company has not disclosed the exact impact of the U.S. Inflation Reduction Act on its quarterly operating profit.
In summary, the combination of early demand from automakers and the U.S. tax credit subsidy contributed most to the 152% profit increase, alongside improved operational performance excluding subsidies. The value of 1 USD is approximately 1,363.1000 won.
The U.S. tax credit subsidies under the Inflation Reduction Act, such as the Advanced Manufacturing Production Tax Credit (AMPC), have significantly boosted LG Energy Solution's quarterly operating profit, contributing to the 152% increase. Additionally, the increased demand from automakers, despite a decline in sales, has also played a crucial role in the profit surge, showcasing the impact of improved operational efficiency in the industry and finance sectors.
