|LG Chem's operating profit|
By Nam Hyun-woo
Batteries powered LG Chem in the second quarter of this year, with its battery business generating a surprising 2.82 trillion won in sales and 155.5 billion won operating profit for the three months ended June 30 amid the soaring demand for electric vehicles (EVs).
In a conference call to investors, Friday, LG Chem remained positive about further expanding its battery business from a profit standpoint, saying the business is set to reach 13 trillion won ($10.9 billion) at the end of this year with third-quarter sales growing more than 25 percent.
"With our production capacity growing smoothly, the overall output is expected to show stable growth, and we believe we have set up a structure of profit-making in the second quarter," Chief Financial Officer Cha Dong-seok told investors. The company added that it would increase production capacity to 100 gigawatt-hours by the end of this year. The company said its profit from its battery business would grow by 30 percent every year, and that it had a 150 trillion won order backlog.
"In the third quarter, sales across our battery business will grow more than 25 percent from the second quarter, in the wake of European carmakers' launch of new EVs, increasing sales of cylindrical EV batteries and rising demand for small batteries for info-tech devices," the company said.
LG Chem supplies EV batteries for all leading global car manufacturers. Its battery sales stood at 8.4 trillion won last year.
LG Chem's battery business generated an operating profit for the first time since the fourth quarter of 2018. Then, it was closer to a one-off surprise, but the profit this time is interpreted as the moment that LG has surpassed its break-even point in the battery business.
LG Chem attributed its solid numbers to the stabilized yield rate at its key European plant in Wroclaw, Poland. While it refused to elaborate on the improvements in the plant's yield rate, it added that its new manufacturing lines at Chinese and Polish plants were "meeting the company's own yield rate targets" and that this would also be the case at new manufacturing lines scheduled to be operating in the second half of this year.
Along with sharp growth in EV battery sales, LG Chem said its energy storage systems (ESS) had also shown noticeable growth in sales, rising by 30 percent during the latest quarter on better-than-expected demand in North America.
For small batteries, such as those for IT devices and cylindrical batteries, the company said the demand for IT device batteries has already reached the maturing point, but the growth of EV markets in Southeast Asia would boost demand for cylindrical batteries in the long term.
LG Chem said it would focus on manufacturing pouch cell batteries, stressing that it believed pouch cells have a competitive edge over prismatic or other types of batteries in design cost, longevity and performance. Regarding Chinese battery producer CATL's move to supply lithium iron phosphate (LFP) batteries to Tesla, LG Chem claims its lithium nickel manganese cobalt oxide (NMC) battery has more advantages.
LG Chem logged 6.94 trillion won in sales in the second quarter, up 2.3 percent from a year earlier. Operating profit stood at 571.6 billion won, up 177.7 percent during the same period. The 8.2 percent operating margin in the second quarter was the highest since the third quarter of 2018.
Regarding the latest updates in the ongoing legal battle with SK Innovation after the USITC recently ruled in favor of LG over SK's alleged theft of LG's battery secrets, LG said SK was trying to hurt LG Chem's shareholders and corporate value by infringing on LG's battery know-how and related secrets.
"Before the final ruling from USITC, LG Chem could settle outstanding issues with SK Innovation but any settlement will only come after the two parties agree reasonably, based on facts and evidence," LG said. A final ruling is due on October 5.